Opinion
IP 03:cv-0672-JDT-WTL
December 16, 2003
ENTRY DISCUSSING PLAINTIFFS' OBJECTION TO REMOVAL AND MOTION TO REMAND FOR LACK OF SUBJECT MATTER JURISDICTION
This Entry is a matter of public record and is being made available to the public on the court's web site, but it is not intended for commercial publication either electronically or in paper form. Although the ruling or rulings in this Entry will govern the case presently before this court, this court does not consider the discussion in this Entry to be sufficiently novel or instructive to justify commercial publication or the subsequent citation of it in other proceedings.
Plaintiffs, Nancy A. DiMartino ("DiMartino") and Lafayette Cancer Care, P.C. (LCC), filed an action in Marion County Superior Court against Defendant Somerset Financial Services, L.L.C. ("Somerset"), alleging two counts of fraud, two counts of negligence/malpractice, and one count of conversion. The Defendant removed the action to federal court. This matter comes before the court on Plaintiffs' Objection to Removal and Motion to Remand for Lack of Subject Matter Jurisdiction. Having considered this motion and the submissions of both parties, the court decides as follows:
I. Background
On March 28, 2003, Plaintiffs filed a Complaint against the Defendant in Marion County Superior Court, alleging two counts of fraud, two counts of negligence, and one count of conversion. DiMartino, who lives and works in Lafayette, Indiana, is an oncologist and the sole shareholder of LCC. (Compl. ¶ 1.) LCC is an Indiana professional corporation, taxable as a "C" corporation, through which DiMartino conducts her practice. ( Id. ¶ 2.) Somerset is an Indiana limited liability company, with its principal place of business in Indianapolis, Indiana, and provides accounting, wealth management, and other financial services to businesses and individuals. ( Id. ¶ 4.)In 1996, DiMartino, personally and for LCC, retained Somerset "to provide a variety of accounting and financial consulting services, including . . . tax and asset analysis, preparation of income statements, balance sheets, tax returns and related records, and provision of various financial advice." ( Id.) Specifically, the Plaintiffs retained Steven Diagostino ("Diagostino"), a Somerset principal. ( Id.) Late in 2000, DiMartino and Diagostino began meeting to discuss how DiMartino could better plan for income after retiring from the practice of medicine. ( Id. ¶ 5.) During one of the meetings, Diagostino suggested that DiMartino meet with Steve Dum ("Dum"). According to the Plaintiffs, Diagostino referred to Dum as a colleague, who specialized in wealth management and related areas. The Complaint alleges that Diagostino failed to inform DiMartino that Dum was not an accountant, but a life insurance salesman for Somerset. ( Id.)
DiMartino spoke with Dum several times, sometimes with Diagostino participating, to discuss tax-preferred financial planning, wealth increase strategies, and related matters for both DiMartino personally and LCC. ( Id. ¶ 6.) During one of these conversations, Somerset, through Dum and/or Diagostino, recommended that LCC adopt the use of a Voluntary Employees' Benefit Association (VEBA) as a tax-advantaged vehicle to supplement DiMartino's wealth management plan. ( Id.) A VEBA is an entity formed to provide welfare benefits to owners of businesses. ( Id.)
On December 28, 2000, DiMartino and LCC executed a document entitled The Regional Employer's Assurance Leagues Voluntary Employees' Beneficiary Association Health and Welfare Benefit Plan Adoption Agreement ("Adoption Agreement") as part of an overall estate and wealth plan for DiMartino. (Dum Affidavit ¶ 4.) The Adoption Agreement created the Lafayette Cancer Care PC Voluntary Employees' Beneficiary Association Health and Welfare Benefit Plan (the "Plan"). ( Id. ¶ 6.) As part of the Adoption Agreement, LCC agreed to become a member of a plan, consisting of other employers known as the Regional Employers Assurance Leagues, Region 5, Chapter A, Voluntary Employees Beneficiary Association Health and Welfare Plan. ( Id. ¶ 8.) Penn Mont Benefit Services, Inc. is the plan administrator. (Intro. to Summ. Plan Description.) The plan provides life insurance benefits and qualifies as an employee benefit plan under ERISA, 29 U.S.C. § 1002. The life insurance for DiMartino was sold by Dum. (Diagostino Affidavit ¶ 7.)
The terms of the Adoption Agreement designated LCC as the employer with regard to the Plan under the applicable provisions of ERISA. (Dum Affidavit ¶ 9.) The Plan was funded through the purchase of a permanent variable life insurance policy from Western Reserve Life. ( Id. ¶ 10.) DiMartino was covered by the Plan at the time this suit was filed. ( Id. ¶ 11.) Life insurance was also purchased for other employees of LCC, who were eligible for coverage under the Plan. ( Id.)
According to the Plaintiffs, Somerset told DiMartino that use of the VEBA would effectively enable DiMartino to "put more money away" for use after DiMartino stopped practicing medicine because the amount for the premium exceeded the cost of providing the death benefits under the life insurance policy. (Compl. ¶ 7.) DiMartino was informed that the excess premium amounts would accrue and grow inside the VEBA without being subject to tax. After the cash value increased, LCC would be able to stop using the VEBA, at which time DiMartino could withdraw the accrued and increased amount of cash, which would be taxed only at the time of actual distribution. ( Id.) Somerset also informed DiMartino that LCC would, in the meantime, be able to deduct as a business expense the full amount of premiums paid for the life insurance policy, including the amount above the cost of providing death benefits. ( Id.)
Additionally, the Plaintiffs contend that through the course of DiMartino's and Somerset's discussions, and while Somerset worked on DiMartino's and LCC's financial matters, Somerset continued to represent and reiterate to DiMartino that the use of the VEBA was a legal method of deferring taxable compensation and would also be a deductible business expense for LCC. (Compl. ¶ 8.) The Plaintiffs allege that during this time, "Somerset knew and has even affirmatively stated elsewhere that VEBAs are not qualified plans of deferred compensation for tax purposes." ( Id.) Although Somerset had multiple opportunities between 2000 and 2002, the Plaintiffs contend that Somerset failed or refused to correct any misinformation. ( Id. ¶ 12.) Furthermore, the Plaintiffs allege that they were unable to learn before February 2003 that they were subject to liability for unpaid income taxes and penalties because Somerset had total control over the relevant documents. ( Id. ¶ 14.)
On March 28, 2003, DiMartino and LCC filed this lawsuit against Somerset, alleging fraud, negligence/malpractice, and conversion/theft. On May 9, 2003, Somerset filed a Notice of Removal, claiming that the United States District Court of the Southern District of Indiana has subject matter jurisdiction over the action because the Plaintiffs' claims are completely preempted by ERISA. On June 12, 2003, the Plaintiffs filed a Memorandum in Support of Objection to Removal and Motion to Remand for Lack of Subject Matter Jurisdiction. Somerset filed Defendant's Brief in Opposition to Remand on June 27, 2003. On July 21, 2003, Plaintiffs filed a Reply.
II. Standards
Somerset removed this action to federal court, alleging that the court has original jurisdiction under 28 U.S.C. § 1331 because the claims arise out of and relate to an employee welfare benefit plan, within the definition of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. Plaintiffs argue that removal is improper and seek to remand the action to state court, arguing this court lacks subject matter jurisdiction. The issue in this motion is whether the Plaintiffs' claims are completely preempted so that this court properly has subject matter jurisdiction over the action.
A. Federal Question
A state action may be removed to federal court where the federal district courts have original jurisdiction. Rogers v. Tyson Foods, Inc., 308 F.3d 785, 787 (7th Cir. 2002) (quoting 28 U.S.C. § 1441 (a)). If diversity of citizenship is not alleged, then the propriety of the removal depends on whether the district court has federal question jurisdiction. Id. (citing Seinfeld v. Austen, 39 F.3d 761, 763 (7th Cir. 1994)). In determining whether federal question jurisdiction exists, the court first examines the Plaintiffs' Complaint because "`[i]t is a long settled law that a cause of action arises under federal law only when the plaintiffs well-pleaded complaint raises issues of federal law.'" Speciale v. Seybold, 147 F.3d 612, 614 (7th Cir. 1998) (quoting Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987) (citations omitted)). Thus, it is the Plaintiffs' Complaint, not the Defendant's response, that controls the litigation. Id. (citing Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1482 (7th Cir. 1996)). Furthermore, "[a]ny doubt regarding jurisdiction should be resolved in favor of the states." Doe v. Allied-Signal, Inc., 985 F.2d 908, 911 (7th Cir. 1993) (citing Jones v. Gen. Tire Rubber Co., 541 F.2d 660, 664 (7th Cir. 1976)).
B. Complete Preemption
The doctrine of complete preemption is a corollary to the well pleaded complaint rule. Rogers, 308 F.3d at 787 (citing Rice v. Panchal, 65 F.3d 637, 640 n. 2 (7th Cir. 1995)). Complete preemption exists where "`Congress has so completely preempted a particular area that no room remains for any state regulation,'" making the Plaintiffs' Complaint "`necessarily federal in character.'" Id. (quoting Bastien v. ATT Wireless Serv., Inc., 205 F.3d 983, 986 (7th Cir. 2000) (quoting Taylor, 481 U.S. at 63)). When an area of state law is completely preempted, the Plaintiffs' state law claim will be "recharacterized" as a federal claim so removal is proper, even if the Plaintiffs' Complaint does not state a basis for federal jurisdiction. Speciale, 147 F.3d at 615 (citations omitted). Thus, "the complete preemption doctrine `is not a preemption doctrine but rather a federal jurisdiction doctrine.'" Id. (quoting Lister v. Stark, 890 F.2d 941, 943 n. 1 (7th Cir. 1989) and citing Jass, 88 F.3d at 1487). The Supreme Court has extended the complete preemption doctrine to include all state actions that fall under the scope of § 502(a) of ERISA. Id. (citing Taylor, 481 U.S. at 67). Section 502(a) provides, in relevant part:
A civil action may be brought —
(1) by a participant or beneficiary —
(A) for the relief provided for in subsection (c) of this section, or
(B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan;
(2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title;
(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provision of this subchapter or the terms of the plan. . . .29 U.S.C. § 1132(a).
The federal courts use different frameworks to determine whether an action falls within the scope of § 502(a), but "all center around a similar goal: to determine whether there exists a congressional intent in the enactment of a federal statute not just to provide a federal defense to a state created cause of action but to grant a defendant the ability to remove the adjudication of the cause of action to a federal court by transforming the state cause of action into a federal cause of action." Wright Miller, Federal Practice Procedure § 3722.1 (1998). The Seventh Circuit's complete preemption test looks at the following three factors: "(1) whether the `plaintiff' [i]s eligible to bring a claim under [§ 502(a)]; (2) whether the plaintiff's cause of action falls within the scope of an ERISA provision that the plaintiff can enforce via § 502(a); and (3) whether the plaintiff's state law claim cannot be resolved without an interpretation of the contract governed by federal law." Speciale, 147 F.3d at 615 (citing Jass, 88 F.3d at 1487 (citing Rice, 65 F.3d at 641, 644)). "When all three factors are present, the state law claim is properly recharacterized as an ERISA claim under § 502(a)." Moran v. Rush Prudential HMO, Inc., 230 F.3d 959, 967 (7th Cir. 2000) (citing Jass, 88 F.3d at 1489-90); see also Sonoco Prods. Co. v. Physicians Health Plan, Inc., 338 F.3d 366, 372 (4th Cir. 2003) (noting that "[t]he Seventh Circuit has identified three essential requirements for complete preemption" (emphasis added) (citing Jass, 88 F.3d at 1487)).
III. Discussion
The court examines DiMartino's and LCC's claims under each of the three factors of the Seventh Circuit test in order to determine whether removal was proper.
A. Eligible Plaintiffs
The first factor the court must examine in determining whether the Plaintiffs' action is displaced is whether the Plaintiffs are "eligible to bring a claim under" § 502(a). Jass, 88 F.3d at 1487; see also Sonoco, 338 F.3d at 372 (phrasing first factor to require that "plaintiff must have standing under § 502(a) to pursue its claim"). Section 502(a) lists the specific kinds of claims that may be brought under ERISA and the specific parties entitled to assert the claims. Sonoco, 338 F.3d at 372. Under § 502(a)(1), a suit may be brought by "participants" or "beneficiaries" of a plan. Sections 502(a)(2) and 502(a)(3) permit suits to be brought by "participants," "beneficiaries," and "fiduciaries." Under ERISA, a participant is defined as "`any employee . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan.'" Id. at 372 n. 8 (quoting 29 U.S.C. § 1002(7)). A beneficiary is defined as "`a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.'" Id. (quoting 29 U.S.C. § 1002(8)). Thus, under the statute, an employer is neither a participant nor beneficiary. Id.
In Plaintiffs' Memorandum in Support of Objection to Removal, they state that they do not dispute that "in some circumstances (none of which exist here), one or both of them might be `eligible to bring a claim' under § 502(a)." (Pls.' Memo. Supp. Objection Removal and Mot. Remand Lack of Subject Matter Jurisdiction at 4.) The Plaintiffs filed a Submission of New Authority on November 4, 2003, in which the Plaintiffs submitted Sonoco, 338 F.3d 366. The Defendant subsequently filed an Objection and Motion to Strike the Plaintiffs' Submission of New Authority. "Federal courts are courts of limited jurisdiction and may only exercise jurisdiction where it is specifically authorized by federal statute." Teamsters Nat'l Auto. Transporters Indus. Negotiating Comm. v. Troha, 328 F.3d 325, 327 (7th Cir. 2003). Furthermore, the court has "an independent obligation to satisfy itself that federal subject matter jurisdiction exists before proceeding to the merits in any case" even when neither parties have questioned it. Smith v. Am. Gen. Life Acc. Ins. Co., 337 F.3d 888, 892 (7th Cir. 2003) (citing St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 287 n. 10 (1938); Ross v. Inter-Ocean Ins. Co., 693 F.2d 659, 660 (7th Cir. 1982)). It also follows that the court may base its finding of no federal jurisdiction on grounds not raised by any of the parties. Therefore, the Defendant's Motion to Strike is DENIED.
LCC is designated as the employer for the plan and under the provisions of ERISA. (See Dum Aff. ¶ 9; Adoption Agreement § 11a; Summ. Plan Description § 14 (defining "Employer").) DiMartino, as the sole shareholder of LCC (Comp. ¶ 1), is also an employer under the plan. "[E]mployers may not sue under ERISA because the statute does not authorize them to sue." S. Illinois Carpenters Welfare Fund v. Carpenters Welfare Fund, 326 F.3d 919, 922 (7th Cir. 2003) (citing Giardono v. Jones, 867 F.2d 409 (7th Cir. 1989)). "An employer cannot ordinarily be an employee or participant under ERISA" as it is a "fundamental requirement of ERISA that `the assets of a plan shall never inure to the benefit of any employer.'" Giardono, 867 F.2d at 411 (quoting 29 U.S.C. § 1103 (c)(1)). Moreover, even though DiMartino is also a participant under the Plan, "this statutory mandate preclude[s] sole proprietors from having the dual status of employer-employee for purposes of ERISA." Id. (citing Peckham v. Bd. of Trustees, 653 F.2d 424, 427 (10th Cir. 1981); Chase v. Trs. of W. Conference of Teamsters Pension Trust Fund, 753 F.2d 744, 748 (9th Cir. 1985)).
Thus, DiMartino and LCC are eligible to bring suit under ERISA only if they are fiduciaries under ERISA and only if they are asserting claims in their capacity as fiduciaries. Sonoco, 338 F.3d at 372 (citing Coyne Delany Co. v. Selman, 98 F.3d 1457, 1465 (4th Cir. 1996)). Employers are permitted to bring claims in their role as fiduciaries because "[w]hen an employer files suit as a fiduciary, he acts for the benefit of plan participants and beneficiaries; he does not act in his own interest and thus does not risk running afoul of the requirement that the asse[ts] of a plan may not inure to the benefit of an employer." Giordono, 867 F.2d at 412 (citations omitted). Furthermore,
[a]n employer that establishes or maintains an employee benefit plan . . . is a plan sponsor. And a plan sponsor acts as a fiduciary only to the extent that it exercises any discretionary authority over the management or administration of a plan. A plan sponsor does not, however, act as a fiduciary simply by performing settlor-type functions such as establishing a plan and designing its benefits. Importantly, the same entity may function as an ERISA fiduciary in some contexts but not in others. Accordingly, a plan sponsor is entitled to wear different hats: it may perform some functions as a fiduciary to the plan, while it may perform other functions on its own behalf, i.e., in a non-fiduciary capacity. A plan sponsor, however, only possesses standing to pursue actions under § 502(a) that are related to the fiduciary responsibilities it possesses.Sonoco, 338 F.3d at 372-73 (internal quotations and citations omitted).
In the present case, first, it does not appear from the record that the Plaintiffs could even bring suit in a fiduciary capacity because the record does not demonstrate that the Plaintiffs have the ability to exercise discretionary authority over the management or administration of the Plan. Penn Mont Benefit Services, Inc. is the Plan administrator, not the Plaintiffs. (Intro. to Summ. Plan Description.) Additionally, the record does not support that the Plaintiffs exercised any more control over the Plan beyond establishing and designing the benefits. Second, even if the Plaintiffs are fiduciaries to the Plan, it is clear that the Plaintiffs have not brought suit in their role as fiduciaries to the Plan, but have brought suit on their own behalf. That is, the Plaintiffs have sued the Defendant to vindicate harm suffered by DiMartino and LCC personally, not to vindicate any harm suffered by Plan participants or beneficiaries. See Sonoco, 338 F.3d at 374.
B. Scope
The second factor of the Seventh Circuit test examines whether the Plaintiffs' claims fall within the scope of an ERISA provision, which the Plaintiffs are able to enforce under § 502(a). Jass, 88 F.3d at 1487 (citing Rice, 65 F.3d at 641). One court has noted that the "key" to determining whether there has been complete preemption of a claim is to recognize that § 502(a) comprehensively regulates certain relationships. See Gen. Am. Life Ins. Co. v. Castonguay, 984 F.2d 1518, 1521 (9th Cir. 1993). Section 502(a) expressly limits the actions available," as well as by whom and against whom they may be brought." Toumajian v. Frailey, 135 F.3d 648, 656 (9th Cir. 1998). When the dispute arises out the relationship with a non-ERISA entity, or between non-ERISA entities, a state law claim will not be found to be completely preempted because there is less of a chance that it will disrupt the ERISA scheme. See Castonguay, 984 F.2d at 1522.
In the present case, the court examines complete preemption analysis under § 502(a) in the context of a dispute between an employer and the employer's accountant, which is an entity not related to the Plan. The employer-plaintiff alleges that the non-ERISA accountant fraudulently and negligently advised her to establish the ERISA plan.
The court's research has not uncovered any Seventh Circuit cases that have addressed the issue of complete preemption in a fraud or malpractice suit brought by an employer against a non-ERISA accountant for fraudulently and negligently advising the plaintiff to establish the Plan. However, the present case is analogous to a Ninth Circuit case. In Toumajian v. Frailey, 135 F.3d 648, the plaintiff brought a negligence action in state court against the accountants he had retained for establishing and administering his pension plan. The plaintiff, Toumajian, alleged that the accountants failed to exercise reasonable care and skill by failing to adequately research relevant tax laws and failing to advise the plaintiff that the pension plan was illegal. Specifically, Toumajian asserted that the negligence claims arose from:
(1) defendants' failure to properly advise the plaintiff on the legality of the "ERISA plan's creation, actions and administration"; (2) defendants' improper advice that "monies from the ERISA plan could be invested in [zero] coupon bonds"; (3) defendants' advice that "monies from the ERISA plan could be co-mingled with the plaintiff's monies"; (4) defendants' advice concerning "procedures to notify members of the ERISA plan"; and (5) defendants' failure to provide plaintiff with "competent and proper advice" concerning the withdrawal of "funds from the ERISA plan."Id. at 652.
The Ninth Circuit held that Toumajian's claim was not displaced by § 502(a), reasoning as follows:
Toumajian did not seek relief as participant or beneficiary of the plan for benefits due or to enforce the terms of the plan. . . . Nor did Toumajian, as a participant or beneficiary of an ERISA plan, assert that Frailey was an administrator of the plan who failed to provide him with benefits information. . . . Nor does he seek relief as a participant, beneficiary, or fiduciary to enjoin any act or obtain other equitable relief to redress any violations or enforce any provisions of ERISA. Toumajian's claim seeks only compensatory money damages for professional malpractice; he does not seek any type of injunctive or equitable relief. . . .
This leaves subsection (2) of § 1132(a) as the only possible ground for supporting federal jurisdiction. . . .
Even in the event that the defendant Frailey can be considered a fiduciary to the ERISA plan,. . . Toumajian is not seeking relief on behalf of an ERISA plan, as required by the express terms of § 1109(a). . . .
Importantly, Frailey did not claim to be an administrator or fiduciary of the plan. As to the original Complaint, there is no assertion that Frailey had discretionary control over the plan or its assets, or regularly provided investment advice to the plan for a fee.Id. at 656-57.
Additionally, in Fain v. FSC Securities Corp., 111 F. Supp.2d 1039 (N.D. Ind. 2000), a district court in the Seventh Circuit addressed the issue of complete preemption in a suit by an employer against a non-ERISA investment advisor. In Fain, the plaintiff was the owner of a company that offered its employees a profit sharing plan. The defendants were not fiduciaries to the plan or a plan entities, but provided investment advise to participants in the profit sharing plan. "[T]he defendants' only role is that after participants in the Hercules' plan cashed-out their investments in Hercules' prior plan, the participants reinvested that money based upon [the defendants'] advice regarding investment options." Id. at 1040. In Fain, the plaintiff, a participant in the plan, met with the defendants for investment advice and, according to the plaintiff, had ordered the defendants to reinvest his money in one fund, but the defendants invested the money in a different fund. The plaintiff filed an action against the defendants, alleging breach of contract, breach of duty, and negligence. The district court held that the plaintiff's suit did not fall in the scope of § 502(a) because the plaintiff's claims sought damages from a non-ERISA fiduciary. The court reasoned: "Mr. Fain's claims cannot be recharacterized as claims seeking to recover any benefits due to him under the plan, or to enforce his rights under the terms of the plan, or to assert mismanagement on the part of Hercules as the fiduciary administering the plan. Rather, Mr. Fain asserts that Mr. Watercutter, a non-fiduciary, breached the contract, breached his duty of care, and was negligent in his actions as an investment advisor to Mr. Fain." Id. at 1043.
The district court in Fain, however, did not question the employer's eligibility to bring a suit under ERISA, but held that the plaintiff's claim was not completely preempted because the second and third factors of the test were not satisfied.
As in Toumajian and Fain none of the provisions of § 502(a) cover the relationship between the Plaintiffs and Somerset. First, under § 502(a)(1), the Plaintiffs do not seek to recover any alleged benefits due under the terms of the death plan. They do not seek to enforce their rights under the terms of the death plan. They also do not seek to clarify their rights to future benefits under the terms of the plan. In fact, the Plaintiffs suit alleges no wrongdoing on the part of the plan; the plan is not a defendant in the action. See Neuma, Inc. v. AMP, Inc., 259 F.3d 864, 872 n. 4 (7th Cir. 2001) ("We continually have noted that "`ERISA permits suits to recover benefits only against the Plan as an entity."'" (quoting Jass, 88 F.3d at 1490)); see also Cent. Laborers Welfare Fund v. Philip Morris, Inc., 85 F. Supp.2d 875, 890 (S.D. Ill. 1998); Norton v. Cigna Individual Fin. Servs. Co., 825 F. Supp. 852 (N.D. Ill. 1993); Lupo v. Human Affairs Int'l, Inc., 28 F.3d 269, 272-73 (2d Cir. 1994); Stewart v. Pershing Health Sys., 182 F. Supp.2d 856, 863 (E.D. Mo. 2001); Feuerzeig v. Innovative Communication Group, 174 F. Supp.2d 349, 355 (D. V.I. 2001); Blaylock v. Hynes, 104 F. Supp.2d 1184, 1189-90 (D. Minn. 2000); Hanks v. Gen. Motors Corp., 26 F. Supp.2d 977, 984 (E.D. Mich. 1998). Second, the suit between DiMartino and Somerset is not a suit within the scope of § 502(a)(2). Section 502(a)(2) permits plaintiffs, on behalf of the Plan, to bring action against fiduciaries to the plan. See Mertens v. Hewitt Assocs., 508 U.S. 248, 251-52 (1993). Cf. Pappas v. Buck Consultants, Inc., 923 F.2d 531, 535 (7th Cir. 1991) (noting that other Circuits have refused to extend fiduciary liability to professionals who merely advise trustees of an ERISA plan). Neither Plaintiffs nor Somerset claim that Somerset is a fiduciary of the Plan. Third, under § 502(a)(3), equitable relief is available to redress violations of the Plan. However, Plaintiffs in this case seek damages against Somerset, not equitable relief. Nor does it appear that equitable relief would be available. Cf. Traynor v. O'Neil, 94 F. Supp.2d 1016, 1021-22 (W.D. Wis. 2000).
Somerset argues that the focus of the second factor of the test for complete preemption should not be on the nature of the defendant, but should be on whether the Plaintiffs' claims are enforceable under § 502(a). ( See Def.'s Br. Opp'n Mot. Remand at 11.) But, as Somerset recognizes, "the parties' relationship is an important part of preemption analysis." ( Id.) As discussed above, the key to complete preemption analysis is to recognize that ERISA regulates certain relationships. Moreover, although the Seventh Circuit test does not explicitly examine the nature of the Defendant, other circuits have explicitly focused their test for complete preemption on whether the defendant can be characterized as an ERISA-entity. See, e.g., Ervast v. Flexible Prods. Co., 346 F.3d 1007, 1013 (11th Cir. 2003) (utilizing the following four prong test for determining complete preemption: "a (1) relevant ERISA plan exists, under which a (2) plaintiff with standing is suing (3) and ERISA entity for (4) `compensatory relief akin to that available under § 1132(a); often this will be a claim for benefits due under a plan.'" (citations omitted)).
Next, Somerset argues that the Plaintiffs have "artfully" construed their Complaint in order to avoid removal. (Def.'s Br. Opp'n Remand at 5 (citing Jass, 88 F.3d at 1486-87).) An examination of the facts in the record does not suggest that the Plaintiffs' claims are anything different than what they appear to be. In Jass, 88 F.3d 1482, the plaintiff brought a negligence claim against a "nurse," and a vicarious liability claim against the medical plan. The plaintiff alleged that Margulis, whom the plaintiff held out as a nurse, was negligent when Margulis determined that a course of treatment was medically unnecessary and discharged the plaintiff from the hospital. The Seventh Circuit held that the plaintiff's claim against Margulis was completely preempted. The court noted that what the plaintiff artfully omitted was that Margulis was a utilization review administrator for the plan, who determined the appropriate medical benefits due to the plaintiff under the plan. The record additionally revealed that the plaintiff's only contact with Margulis was in her capacity as a utilization review administrator for the plan. Id. at 1489. The court stated that the plaintiff's claim against Margulis was essentially a claim for the denial of benefits. Id. In the present case, Somerset has not demonstrated to the court that the Plaintiffs have artfully omitted or misrepresented important facts. Thus, the court accepts the Plaintiffs' facts exactly as they are alleged.
Lastly, Somerset contends that fraud claims, including fraudulent inducement claims, are generally preempted by ERISA. (Notice of Removal ¶ 12.) For this proposition, the Defendant cites Anderson v. Humana, Inc., 24 F.3d 889, 891 (7th Cir. 1994), Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 43, 47-48 (1987), and Hall v. Blue Cross/Blue Shield of Alabama, 134 F.3d 1063, 1065 (11th Cir. 1998). First, the passages in these cases to which the Defendant cites discuss the issue of conflict preemption under § 514, not complete preemption under § 502. Second, the present action is not a fraudulent inducement action in the same vein as Pilot Life, Anderson, and Hall. In Pilot Life, the plaintiff raised a fraudulent inducement claim against the insurance company that issued the group insurance policy for his plan. 481 U.S. at 43. In Anderson, the plaintiff sued her HMO sponsor for the failure to adequately explain the HMO's incentive structures. 24 F.3d at 890-91. Similarly, in Hall, the plaintiff brought a fraudulent inducement action against the insurance company under the plan. 134 F.3d at 1064. All three of these cases involve claims by plan participants against insurance companies or the plan for misrepresenting or failing to disclose certain facts about the coverages or the plan itself. In the present case, the Plaintiffs have not brought action against the insurance company that issued the policy or even the plan administrator. The Plaintiffs' claim, rather, is that they were fraudulently induced to establish and create the Plan for the corporation's employees, not that they were fraudulently induced by the Plan or a issuing company to enroll in the Plan or some specific policy under the Plan. Once again, the key here is the nature of the relationship.
Both the Plaintiffs and the Defendant have cited in their Briefs a number of cases in which courts have analyzed preemption under § 514, which is known as "conflict preemption." See Speciale, 147 F.3d at 615. Conflict preemption is a "a second federal `preemption' doctrine," which "serves as a defense to a state law action but does not confer federal question jurisdiction." Id. "`Complete preemption' under § 502(a) encompasses all claims by a participant or beneficiary to enforce his rights under an ERISA plan whereas `conflict preemption' under § 514(a) preempts any state law that may `relate to' an ERISA plan, but is not a basis for federal jurisdiction." Id. (citing Jass, 88 F.3d at 1488). Thus, "complete preemption under § 502(a) creates federal question jurisdiction whereas conflict preemption under § 514(a) does not." Rice, 65 F.3d at 640 (citing Lister v. Stark, 890 F.2d 941, 943 n. 1 (7th Cir. 1989), cert. denied, 498 U.S. 1011 (1990)).
C. Plan Interpretation
The third factor the court considers in determining whether there is complete preemption is whether the suit requires an interpretation of the Plan. Jass, 88 F.3d at 1487 (citing Rice, 65 F.3d at 641). Somerset argues that "because interpretation of the terms of the ERISA plan is essential to determining the merits of Plaintiffs' claims, federal jurisdiction is proper under ERISA's preemptive scope." (Notice of Removal ¶¶ 10, 13, 14.)The Seventh Circuit first established this third factor of the three factor test in Rice v. Panchal, 65 F.3d 637. In Rice, an employee sued his health plan administrator for the alleged medical malpractice of two doctors under the state law theory of respondeat superior. In establishing the third factor of the three factor test for determining whether a claim was completely preempted, the Seventh Circuit examined two lines of Supreme Court decisions and found that
[t]he common thread running through these cases is that complete preemption is required where a state law claim cannot be resolved without an interpretation of the contract governed by federal law. And this focus on interpretation of the contract seems well-suited to the language of § 502(a)(1)(B) which concerns suits to recover benefits, determine future benefits, or enforce rights under the terms of the plan. Also, it seems to jibe with the Supreme Court's § 502(a)(1)(B) complete preemption cases to date insofar as those cases involve claims that benefits were due under the terms of an ERISA plan, or state law claims that measure the quality of contractual performance, and therefore are, in effect, an interpretation of a plan. Seen in this light, we believe that a suit brought by an ERISA plan participant is an action to enforce his rights under the terms of a plan within the scope of § 502(a)(1)(B) where the claim rests upon the terms of the plan or the resolution of the [plaintiffs] state law claim . . . require[s] construing [the ERISA plan].Id. at 644-45 (internal quotations and citations omitted).
After noting that the plaintiff's respondeat superior claim did not rest on the terms of the plan, the Rice court then discussed whether the plaintiff's claim required construing the ERISA plan. See id. at 645. The court held that it did not. The court explained that the only questions that needed to be addressed in order to resolve the dispute were questions of fact and "[g]iven the purely factual nature of the[ ] inquiries," the court held that the plaintiffs claim did not require an interpretation of the contract governed by federal law. Id.
Similarly, the Plaintiffs' claims in the present suit do not rest on the terms of the Plan; thus, the question is whether the Plaintiffs' claims require construing the ERISA plan. The Plaintiffs raise three types of claims: fraud, negligence/malpractice, and statutory conversion/theft/criminal mischief.
Under Indiana law, a plaintiff must establish five elements to prove actual fraud: "`(1) material misrepresentation of past or existing facts by the party to be charged (2) which was false (3) which was made with knowledge or reckless ignorance of the falseness (4) was relied upon by the complaining party and (5) proximately caused the complaining party injury.'" Young v. Thompson, 794 N.E.2d 446, 448 (Ind.Ct.App. 2003) (quoting Rice v. Strunk, 670 N.E.2d 1280, 1289 (Ind. 1996)). To show constructive fraud, the Plaintiffs must demonstrate the following elements: "`(1) a duty owing by the party to be charged to the complaining party due to their relationship; (2) violation of that duty by the making of deceptive material misrepresentations of past or existing facts or remaining silent when a duty to speak exists; (3) reliance thereon by the complaining party; (4) injury to the complaining party as a proximate result thereof; and (5) the gaining of an advantage by the party to be charged at the expense of the complaining party.'" Shriner v. Sheehan, 773 N.E.2d 833, 848-49 (Ind.Ct.App. 2002) (quoting Ind. Dep't of Transp. v. Shelly Sands, 756 N.E.2d 1063, 1077 (Ind.Ct.App. 2001) (quoting Strunk, 670 N.E.2d at 1284)).
For the Plaintiffs' fraud claims, only the first element of the test for actual fraud and the second element of the test for constructive fraud, which require a material misrepresentation, potentially make an interpretation of the plan necessary. The rest of the elements of the tests for actual and constructive fraud are questions of fact, and do not require an interpretation of the plan. The Plaintiffs contend that Somerset misrepresented the following facts: the credentials of Dum, that premiums will grow in the VEBA tax-free and are deductible as legitimate business expenses, and that the Plaintiffs were subject to tax liability on the increase on the excess premium amounts within the VEBA. Somerset argues that an interpretation of the terms of the Plan is necessary in order to determine whether there has been a material misrepresentation. However, the court is not convinced that the terms of the Plan, rather than the Internal Revenue Code and interpretive law, govern the issue of the Plaintiffs' tax liability in relation to the Plan. In fact, the provisions of the Plan make reference to the rules of the Internal Revenue Services and accompanying case law for issues of tax liability. See e.g, Wellons v. Comm'r of Internal Revenue, 31 F.3d 569 (7th Cir. 1994) (appealing determination of Commissioner that deductions for contributions made pursuant to a severance plan for employees was not deductible until benefits were paid), cited in Def.'s Notice of Removal, Ex. 2; Greensboro Pathology Assocs. v. United States, 698 F.2d 1196 (Fed. Cir. 1982) (appealing decision by claims court that payments made toward an employee's education benefit plan were not deductible), cited in Def.'s Notice of Removal, Ex. 2.
Furthermore, while it may be necessary to refer to the language of the Plan in order to determine tax liability, that is different from an interpretation of the Plan. "`[W]hen the meaning of a contract term is not the subject of dispute, the bare fact that a [§ 301 contract]. . . will be consulted in the course of state law litigation plainly does not require the claim to be extinguished.'" Livadas v. Bradshaw, 512 U.S. 107, 124 (1994), quoted in Rice, 65 F.3d at 643); see also Pauley v. Ford Elecs. Refrigeration Corp., 941 F. Supp. 794, 803 (S.D. Ind. 1996).
Next, Indiana courts have not delineated the specific elements required to demonstrate professional malpractice by an accountant. See Toro Co. v. Krouse, Kern Co., 827 F.2d 155, 157 (7th Cir. 1987). However, Indiana courts have held that "[i]n malpractice cases which sound in negligence, as in other negligence cases, a plaintiff must establish three elements: (1) a duty on the part of the defendant to conform his conduct to a standard of care arising from his relationship with the plaintiff; (2) a failure on the part of defendant to conform his conduct to the requisite standard of care required by the relationship; and (3) and injury to the plaintiff proximately caused by the breach." Harris v. Raymond, 715 N.E.2d 388, 393 (Ind. 1999) (citing Walker v. Rinck, 604 N.E.2d 591, 596 (Ind. 1992); Webb v. Jarvis, 575 N.E.2d 992, 995 (Ind. 1991); Cowe v. Forum Group, Inc., 575 N.E.2d 630, 636 (Ind. 1991); Burke v. Capello, 520 N.E.2d 439, 441 (Ind. 1988), overruled on other grounds, Vergara By Vergara v. Doan, 593 N.E.2d 185, 186-87 (Ind. 1992)). Whether Somerset owed a duty to the Plaintiffs is not a question that can be answered by construing the terms of the Plan because the provisions of the Plan is not a contract between the Plaintiffs and Somerset. Morever, injury and causation are questions of fact, and do not require an interpretation of the Plan. This leaves the second element: the issue of whether Somerset failed to conform its professional conduct to the required standard of care. In the Complaint, the Plaintiffs in particular, allege that Somerset was professionally negligent for
(a) failing to perform accounting services in accordance with generally accepted accounting principles, (b) failing to fully and fairly disclose all relevant facts to LCC, (c) failing to provide an accurate picture of LCC's finances and tax status to either the IRS or LCC, (d) rendering erroneous tax advice, (e) failing to reflect accurate information on LCC's tax returns, (f) failing to advice LCC of potential tax problems in time for LCC to avoid or mitigate their effects, and (g) failing to properly interpret or apply governing tax cases, IRS determinations, and other laws well known and commonly available to accounting professionals.
(Compl. ¶¶ 28, 34.) The determinations of allegations (a) through (c) and (e) through (g) are questions of fact that are resolved independently from an interpretation of the terms of the plan. This leaves allegation (d), the charge against Somerset for rendering erroneous tax advice. Once again, the court is not convinced that this question is answered by an interpretation of the Plan provisions, rather than the Internal Revenue Code and interpretive law. Moreover, while it may be necessary to refer to certain provisions of the Plan in order to determine whether the Plaintiffs were eligible to deduct premium payments or permitted not to pay taxes on the increased funds within the VEBA, the terms of the Plan do not ultimately determine the answers.
Lastly, the Plaintiffs claim that Somerset has violated various sections of the Indiana Code. The Plaintiffs allege that Somerset's actions are actionable as criminal mischief, Ind. Code § 35-43-1-2, theft/conversion, Ind. Code § 35-43-4-2 and Ind. Code § 35-43-4-3. Section 35-43-1-2 states: "(a) A person who: (1) recklessly, knowingly, or intentionally damages or defaces property of another person without the other person's consent; or (2) knowingly or intentionally causes another to suffer pecuniary loss by deception or by an expression of intention to injure another person or to damage the property or to impair the rights of another person; commits criminal mischief. . . ." Ind. Code § 35-43-1-2. Section 35-43-4-2 states: "(a) A person who knowingly or intentionally exerts unauthorized control over property of another person, with intent to deprive the other person of any part of its value or use, commits theft. . . ." Id. § 35-43-4-2. Section 35-43-4-3 states: "A person who knowingly or intentionally exerts unauthorized control over property of another person commits criminal conversion. . . ." Id. § 35-43-4-3.
All of the elements of the Indiana statute are questions of fact, not questions that can be resolved by construing the terms of the life insurance plan.
Somerset has listed rows of Plan documents and provisions from those documents, which it asserts the court must examine in order to determine the truth of the alleged representations. Somerset argues that "[t]o determine whether the alleged representations were true, this Court must determine whether the plan supports them." ( Id. ¶ 14.) According to Somerset, the court would have to determine the following claims, by interpreting the Plan:
(1) Plaintiffs' participation in a VEBA plan was a tax-advantaged vehicle to supplement Plaintiff DiMartino's wealth management plan.
(2) Excess payments to the LCC Benefit Plan would accrue inside the VEBA tax free.
(3) LCC could terminate its participation in the VEBA, thereby allowing DiMartino to withdraw the accrued and increased amount but be taxed only on the increase upon distribution which could occur over several years at her election.
(4) LCC's plan contributions were tax deductible, or whether Plaintiffs are liable for unpaid income taxes and penalties on those contributions.
(5) LCC's use of the VEBA was approved by the IRS and posed no adverse tax consequences to Plaintiffs.
(6) LCC's contributions to the Plan were excessive.
(7) Defendants' representations constituted a fraud upon Plaintiffs.
(8) Defendants breached any duties owed to Plaintiffs by way of the advice they gave; and
(9) Defendants converted to their own use and benefit and/or damaged property belonging to LCC.
(Def.'s Br. Opp'n Remand at 15 (numbering added).)
Statements 1 through 6 are tax questions governed by the tax code, not the terms of the life insurance plan. Statements 7 through 9 are issues of fact, as discussed above.
Additionally, Somerset alleges that the court would need to "interpret" and "construe" other provisions of the Plan, to include the following:
Section 5.06: claim procedures when a plan is voluntarily terminated (such as DiMartino alleges she planned to do);
Section 5.08: excess claim procedures (which may be relevant as to how DiMartino could receive any increased amounts that had accrued);
Section 5.11: whether funding of the plan violates ERISA (which may be relevant to Plaintiffs' allegations concerning excess contributions and what occurred with the contribution amounts that exceeded the life insurance premium);
Section 9.02: how funds are distributed when an employer voluntarily terminates a plan (something that Plaintiffs allege they intended to do);
Section 9:05: the plan's standing or compliance with the Internal Revenue Code and the effect if it does not so comply in the present or future (relevant to Plaintiffs' claims of tax deductibility of contributions);
Section 10.19: the plan's standing as a multi-employer plan in accordance with the Internal Revenue Code (also likely relevant to Plaintiffs' claims of tax deductibility of contributions); and
Sections 1.03 and 4.05: ERISA and Internal Revenue Code definitions and compliance provisions."
(Def.'s Brief Opp'n Remand at 17.) Somerset has not asserted that these provisions are actually in dispute or explained or offered any explanation of why these cited provisions need to be interpreted in order to resolve the dispute. An examination of these provisions has not proved any more illuminating.
Section 5.06 discusses claim procedures "upon a Participant's death, Disability or other termination of participation in the Plan." (Def.'s Ex. A, Plan, at 15 (emphasis added).) Section 5.08 addresses excess claims. "[T]he term `Excess Claim' is a claim for Benefits the amount of which exceeds the value of assets contributed to the trust by the Employer. . . ." ( Id. at 17.) This provision does not appear, as suggested by the Defendant, to be relevant to how the Plaintiffs, as the employer under the Plan, could receive accrued cash amounts, but governs situations where a participant has become eligible for a benefit, but the Plan does not have the funds to pay out. Section 5.11 only states that "In no event shall any benefit be funded in a manner which would violate ERISA section 514. . . ." ( Id.)
Next, section 9.02 discusses the process of distribution for any assets remaining in the Plan after an employer's termination from the Plan. Although the Plaintiffs do claim that they intend to terminate their participation in the Plan, the Plaintiffs do not contend that they are not subject to tax liability upon termination. Thus, section 9.02 would at most be relevant to the claims brought by the Plaintiffs, but the resolution of the dispute in the present case does not require an interpretation of this provision. Section 9.05 does not state the Plan's standing with the IRS, but merely states that if the Commissioner of the IRS should determine that the Plan is not a tax-exempt plan, then the Plan is void. Section 10.19 only states that "It is intended that this plan qualify as a single multi-employer health and welfare benefit plan," ( id. at 26), the construal of which will not ultimately determine the Plaintiffs' tax liability. Section 4.05 merely states that contributions from the employer may not be contributed in a way that violates the rules of the IRS or ERISA. Finally, section 1.03 provides that "[e]xcept as otherwise defined . . . terms used in this Plan shall have the meaning given them in the Internal Revenue Code of 1986. . . ." ( Id. at 2.)
A court could not determine whether the Plaintiffs' premiums are tax deductible or whether the Plaintiffs were required to pay taxes on the increase on excess premiums inside the VEBA by construing the provisions of the Plan that the Defendant has identified. Perhaps it is for this reason that Somerset uses qualifying language such as "likely relevant" and "may be relevant" when it proffers these provisions as provisions that must be construed in order to resolve the dispute. Rather, it is clear that in order to determine the tax consequences for the Plaintiffs' premium payments to the VEBA, it is necessary to construe the rules of the IRS. Although these provisions may be relevant to the analysis, as discussed above, a possible need to refer to provisions of a plan is not sufficient to confer federal jurisdiction.
An examination of this action under all three of the Rice factors supports the conclusion that the Plaintiffs' claims are not completely preempted. This is a suit brought by Plaintiffs who lack standing to bring suit under § 502(a) against a non-ERISA Defendant, brought under run-of-the-mill state law theories, the resolution of which does not require construing the federal contract. This suit sounds in state law and should be remanded to state court.
IV. Costs and Attorney Fees
The Plaintiffs have requested costs and attorney fees pursuant to 28 U.S.C. § 1447(c), which permits the court to award payment of "`just costs and actual expenses, including attorney fees, incurred as a result of the removal.'" Garbie v. Daimler Chrysler Corp., 211 F.3d 407, 409 (7th Cir. 2000) (quoting 28 U.S.C. § 1447(c)).Section 1447(c) "is not a sanctions rule; it is a fee-shifting statute, entitling the district court to make whole the victorious party." Id. at 410. "The rationale of fee- shifting rules is that the victor should be made whole — should be as well off as if the opponent had respected his legal rights in the first place. This cannot be accomplished if the victor must pay for the appeal out of his own pocket.'" Id. at 411 (quoting Rickets v. South Bend, 33 F.3d 785, 787 (7th Cir. 1994)). "Because § 1447(c) is a fee-shifting statute, the plaintiffs as prevailing parties are presumptively entitled to recover the attorneys' fees incurred in defending their award." Id. (citing Comm'r of INS v. Jean, 496 U.S. 154 (1990)).
Counsel for the Plaintiffs should keep in mind, though, that the fee-shifting provision may enable them to be reimbursed for fees and costs that are reasonable and necessary in defending against the removal, only. It is not intended as a means for obtaining suit money to fund the pursuit of the underlying claims. Accordingly, when the fee request is submitted, it should include only reasonable and necessary costs related to the removal. The other matters, such as scheduling, settlement negotiations, and discovery, if any, would have been done whether the case was pending here or in State Court. The court would also encourage counsel to attempt to resolve this fee matter without intervention of the court. If that cannot be accomplished, the following schedule is set: The Plaintiffs must file their fee petition and any brief in support of it by December 22, 2003; the Defendants may respond by January 5, 2004; and the Plaintiffs may reply by January 12, 2004.
V. Conclusion
For the foregoing reasons, Plaintiffs' Motion to Remand is GRANTED. This action will be REMANDED to Marion County Superior Court. Although the Order of Remand will be issued contemporaneously with this Entry, the matter of the Plaintiffs' Request for Attorney Fees will remain with this court until resolved.
ALL OF WHICH IS ORDERED.