Opinion
IP 02-0197-C-T/K.
May 2, 2002
ENTRY ON PLAINTIFFS' MOTION FOR REMAND
Plaintiffs, Spencer F. Goodson and Mary H. Goodson, move to remand this action to state court pursuant to 28 U.S.C. § 1447. Defendant, American United Life Insurance Company ("AUL"), had removed this case, contending that subject matter jurisdiction exists pursuant to 28 U.S.C. § 1331, because Plaintiffs seek damages for conduct related to the alleged denial of disability benefits under an employee welfare benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.
I. Background
The Goodsons filed their Complaint against AUL in the Marion County Superior Court on January 3, 2002. They allege in Count I that AUL breached its contract of insurance with Spencer F. Goodson ("Dr. Goodson") by wrongfully refusing to pay him disability benefits to which he was entitled and in Count II that AUL breached its duty to deal with its insured in good faith. Count I is brought solely by Dr. Goodson; Count II is brought by both Goodsons.
The Complaint alleges that Dr. Goodson was at all times relevant a partner, shareholder/owner and member of the Board of Directors of Cardiovascular Surgical Services, P.C. ("CVSS") (Compl. ¶ 3). It also alleges that he was insured under a policy of insurance from AUL (the "Policy") which provides long term disability insurance and he was entitled to receive such benefits under the Policy. AUL denied his claim for disability benefits.
The Policy, attached to the Complaint as Exhibit A, provides that "The class or classes of Employees eligible for insurance is shown on the Schedule of Benefits. An Employee who is in an eligible class becomes eligible for Personal Insurance on . . . the effective date of the Participating Unit's coverage under the policy. . . ." (Compl., Ex. A, Policy § 3.) The Schedule of Benefits designates the "Eligible Classes" as "All Full-Time Physicians And Practice Administrator" (id. § 1), and the Declarations identify CVSS as the "Participating Unit." (Id. at 1.) The Policy states that an employee is "any individual who is a full-time permanent Employee (or proprietor, partner, or corporate officer) of the Participating Unit." (Id. § 2.) Under the Policy's terms, CVSS was responsible for payment of the premiums to AUL, and CVSS could amend the Policy by agreement with AUL and its trustee. (Id. at 1 and § 6.)
AUL filed its Notice of Removal on February 4, 2002, removing this case to this court. On March 6, 2002, the Goodsons timely filed Plaintiffs' Motion For Remand.
II. Analysis
AUL contends that the court has subject matter jurisdiction over this action because the Goodsons seek relief under an employee welfare benefit plan under ERISA. The Goodsons, on the other hand, contend that this court lacks subject matter jurisdiction. Under ERISA, a "civil action may be brought . . . by a participant or beneficiary . . . or a fiduciary." 29 U.S.C. § 1132(a)(1). The Goodsons' argument boils down to this: because Dr. Goodson was an owner, partner and director of CVSS, he was an employer rather than an ERISA participant or beneficiary. The court disagrees, and, as explained below, determines that Dr. Goodson was a beneficiary of an ERISA plan.
The Goodsons also maintain that Dr. Goodson is not a fiduciary. His status as a beneficiary makes it unnecessary to determine whether he was a fiduciary.
There is a split in authority on the issue of whether a business owner may be a participant in or beneficiary of an employee welfare benefit plan under ERISA. Compare Gilbert v. Alta Health Life Ins. Co., 276 F.3d 1292, 1301-02 (11th Cir. 2001) (holding sole shareholder in business named in a policy which provides coverage to other employees is a beneficiary under ERISA); Wolk v. UNUM Life Ins. of Am., 186 F.3d 352, 356 (3rd Cir. 1999) (holding former law partner designated to receive benefits under an employee welfare benefit plan was beneficiary under ERISA), cert. denied, 528 U.S. 1076 (2000); Robinson v. Linomaz, 58 F.3d 365, 369-70 (8th Cir. 1995) (holding sole shareholders had standing to sue under ERISA because they were beneficiaries of a plan under ERISA); Peterson v. Am. Life Health Ins. Co., 48 F.3d 404, 408-09 (9th Cir. 1995) (holding business partner designated to receive benefits from a health policy which was part of an employee benefit plan had standing to sue under ERISA); Harper v. Am. Chambers Life Ins. Co., 898 F.2d 1432, 1434 (9th Cir. 1990) (partner insured by policy that is part of ERISA plan was beneficiary and had standing to sue under ERISA), with Agrawal v. Paul Revere Life Ins. Co., 205 F.3d 297, 301 (6th Cir. 2000) (holding that sole shareholder surgeon was not a participant or beneficiary under ERISA plan and thus lacked standing to sue under ERISA); Kwatcher v. Mass. Serv. Employees Pension Fund, 879 F.2d 957, 959-662 (1st Cir. 1989) (holding sole shareholder was employer and not employee of corporation and thus not permitted to participate in an ERISA pension plan). The Seventh Circuit Court of Appeals has not spoken on this subject so this court is not bound by controlling precedent in analyzing the question presented. The court finds persuasive the more recent decisions holding that business owners can be beneficiaries under ERISA.
As these decisions recognize, the statutory language supports the conclusion that a business owner can be a beneficiary under ERISA. ERISA defines "beneficiary" 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." 29 U.S.C. § 1002(8) (emphasis added). The court agrees with "the unremarkable conclusion that ERISA's definition of beneficiary means precisely what it says." Hollis v. Provident Life Acc. Ins. Co., 259 F.3d 410, 416 (5th Cir. 2001), cert. denied, ___ S.Ct. ___, 2002 WL 171993 (U.S. Apr. 15, 2002). Thus, under the statutory definition, Dr. Goodson is considered a "beneficiary" if he is designated by an employee benefit plan as one who may be entitled to a benefit under that plan. This raises two issues: whether the Policy is an employee benefit plan, and whether Dr. Goodson is designated by the Policy as a person who may be entitled to a benefit thereunder.
In their initial brief, the Goodsons do not contest that the Policy is an employee benefit plan, though they appear to do so in their reply brief by arguing that if the insurance policy was an ERISA plan, it was only an ERISA plan as to the practice administrator. (Pls.' Reply Br. Supp. Mot. Remand at 2 (citing Fugarino v. Hartford Life Acc. Ins. Co., 969 F.2d 178 (6th Cir. 1992); Dorand v. Sec. Conn. Life Ins. Co., No. 96-T-321-N, 1996 WL 819800 (M.D.Ala. June 28, 1996); Madden v. Country Life Ins. Co., 835 F. Supp. 1081, 1086 (N.D.Ill. 1993).) The cases cited in the reply held that a law partner or business owner did not qualify either as a participant or beneficiary under an ERISA plan. Whether an ERISA plan exists and whether a particular person is a participant or beneficiary are two different questions, however.
In any event, the Policy is part of a welfare benefit plan as defined under ERISA. See, e.g., 29 U.S.C. § 1002(1); Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732, 738 (7th Cir. 1986) (identifying five elements of a welfare benefit plan: "(1) a plan, fund or program, (2) established or maintained, (3) by an employer . . ., (4) for the purpose of providing . . . disability . . . benefits, (5) to participants or their beneficiaries."). The Seventh Circuit's definition of a welfare benefit plan is broad. See, e.g., Brundage-Peterson v. Compcare Health Servs. Ins. Group, 877 F.2d 509, 511 (7th Cir. 1989). The Policy satisfies these elements, so it is an ERISA employee benefit plan. And, Dr. Goodson is designated in the Policy as a person who may become entitled to benefits. Thus, he is a beneficiary under ERISA's definition of that term. Cf. Hollis, 259 F.3d at 415-16 (holding independent contractor designated by disability policy as person who could become entitled to benefits and who did receive benefits under policy was beneficiary under ERISA).
The Seventh Circuit has not squarely addressed whether a business owner may be a beneficiary under ERISA. In Giardono v. Jones, 867 F.2d 409 (7th Cir. 1989), the court held that an owner of a business was an employer and not a participant under ERISA. Id. at 412. The court reasoned that ERISA's anti-inurement provision prohibits the benefits of a plan from benefitting employers. Id. However, the court did not consider whether the owner was a beneficiary under ERISA. Thus, Giardono and the other cases relied upon by the Goodsons for the proposition that an employer, partner, director or owner cannot be an employee or participant under ERISA are not determinative of whether a partner, director or owner can be an ERISA beneficiary.
The anti-inurement provision states:
Except as provided in paragraph (2), (3), or (4) or subsection (d) of this section, or under sections 1342 and 1344 of this title (relating to termination of insured plans), or under section 420 of title 26 (as in effect on January 1, 1999), the assets of a plan shall never inure to the benefit of any employer and shall be held for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan.29 U.S.C. § 1103(c)(1).
The Goodsons cite to Bane v. Ferguson, 890 F.2d 11 (7th Cir. 1989), as stating that "ERISA excludes partners from its protections." Id. at 12. This statement is dictum. Furthermore, the regulation upon which Bane relies for this statement, 29 C.F.R. § 2510.3-3(c)(2), has been understood by at least two courts of appeals and another district court in this circuit as addressing only whether an employee benefit plan exists, not whether a person is a participant or beneficiary under such a plan, once it is determined that the plan exists. See Robinson v. Linomaz, 58 F.3d 365, 369 (8th Cir. 1995); Madonia v. Blue Cross Blue Shield of Va., 11 F.3d 444, 449 (4th Cir. 1993); Eichhorn, Eichhorn Link v. Travelers Ins. Co., 896 F. Supp. 812, 814-15 (N.D.Ind. 1995). This understanding is reasonable and comports with the plain language of the regulation, see 29 C.F.R. § 2510.3-3(c)(2) ("For purposes of this section: . . . (2) A partner in a partnership and his or her spouse shall not be deemed to be employees with respect to the partnership.") (Emphasis added).
"`[T]his section' refers to 29 C.F.R. § 2510.3-3, which deals exclusively with the determination of the existence of an `employee benefit plan.'" Madonia, 11 F.3d at 449.
The Goodsons argue that Dr. Goodson is not a plan beneficiary for purposes of ERISA even though he had a contract of insurance with AUL for the purpose of receiving benefits. For support, they first argue that ERISA refers to "participants and their beneficiaries," 29 U.S.C. § 1002(1), which indicates that a "beneficiary" is a beneficiary of a participant. They also argue that allowing an employer to gain the benefits of ERISA would defeat congressional objectives and ERISA's anti-inurement provision.
The first argument was ably addressed in Wolk v. UNUM Life Insurance of America:
The fact that "beneficiary" is used in other provisions of ERISA to refer to the beneficiaries of a participant does not necessarily mean that the term was only intended to refer to such persons. In defining the term, Congress was careful to include a category for the designees of a participant as well as a category for those designated by the terms of an ERISA plan. . . . If Congress did not intend the phrase "by the terms of the employee benefit plan" to mean what is says, it is for Congress alone to correct.186 F.3d 352, 357 (3rd Cir. 1999), cert. denied, 528 U.S. 1076 (2000). The Wolk court found another reason to reject the argument that "beneficiary" only refers to beneficiaries of a participant: it would be anomalous to require some persons to pursue benefits under a welfare benefit plan under state law but require others to pursue like benefits under ERISA. Id. (citation omitted); see also Gilbert v. Alta Health Life Ins. Co., 276 F.3d 1292, 1303 (11th Cir. 2001) ("once a plan has been established, it would be anomalous to have those persons benefitting from it governed by two disparate sets of legal obligations.") (quotation omitted). That would frustrate the goal of "achieving uniformity in the law governing employment benefits." Wolk, 186 F.3d at 357 (quotation omitted). The court finds this reasoning persuasive and thus rejects the Goodsons' argument that "beneficiary" only means a person designated by a participant. The court must apply the plain meaning of the statutory definition of "beneficiary." See Mertens v. Hewitt Assoc., 508 U.S. 248, 261-62 (1993) ("vague notions of a statute's `basic purpose' are . . . inadequate to overcome the words of its text. . . . This is especially true with legislation such as ERISA. . . .").
Furthermore, in the court's view, the congressional objective and the anti-inurement provision are not sufficient reasons for concluding that Dr. Goodson cannot be a beneficiary. Though the Goodsons assert that Dr. Goodson had authority to participate in decisions regarding plan eligibility, scope of coverage, and amount of premiums, they do not maintain that he had any control over plan assets. And, under the Policy's terms, all premiums were to be paid to AUL. Based on the Policy's terms, as well, it appears that AUL alone made the determination of whether to pay a claim submitted under the Policy. Thus, following the persuasive reasoning in Myerscough, Inc. v. Fortis Benefits Insurance Co., 86 F. Supp. 821 (C.D.Ill. 2000), the court concludes that neither congressional objectives nor ERISA's anti-inurement provision precludes the finding that Dr. Goodson is a beneficiary of an ERISA plan. See id. at 824 (holding that even if minority shareholder was an employer as defined under ERISA, the anti-inurement provision did not prevent him from having standing even though he was involved in selecting coverages and determining when employees could participate in the plan because he had no control over the plan assets, did not determine which claims were paid and did not retain funds from which claims were paid); cf. Wolk,186 F.3d at 357-58 (concluding that purpose of anti-inurement provision not invoked where plan administered exclusively by third-party who made all substantive decisions on eligibility and paid all benefits out of its own funds). The concerns over protecting employees from plan abuses by the employer do not appear to be implicated by this case.
The court therefore holds that Dr. Goodson is a "beneficiary" of an employee welfare benefit plan with standing to sue under ERISA. Thus, the court has subject matter jurisdiction over Dr. Goodson's claims, including the bad faith claim because it relates to an employee welfare benefit plan, see Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 57 (1987) (holding that a state law claim for bad faith improper processing of a claim for benefits under an ERISA plan relates to an employee benefit plan and is therefore preempted by ERISA). Ms. Goodson also claims that AUL breached its duty of good faith, which is based on her husband's contractual relationship with AUL. Assuming that she may assert such a claim, the court has jurisdiction over her claim, as it, too, relates to an employee welfare benefit plan. See id. Accordingly, this court has subject matter jurisdiction over this action, and Plaintiffs' motion for remand is denied.
Because the court finds that Dr. Goodson was a beneficiary of an ERISA plan, it is also unnecessary to reach the question of whether he was a plan participant.
III. Conclusion
As explained, the court has subject matter jurisdiction over this action, and Plaintiffs' Motion For Remand, is therefore DENIED.
ALL OF WHICH IS ORDERED.