Summary
finding no ERISA plan where an employer's actions involved no discretion and no separate administrative scheme was required to support the employer's fulfillment of their obligations
Summary of this case from Lanpher v. Unum Life Ins. Co. of Am.Opinion
Civ. No. 03-3553 (RHK/FLN).
September 30, 2004
Thomas J. Conley, Jennifer S. Wilson, and Todd A. Noteboom, Leonard Street and Deinard, Minneapolis, Minnesota, for Plaintiff.
Hal A. Shillingstad, Flynn Gaskins Bennett, Minneapolis, Minnesota, for Defendant.
MEMORANDUM OPINION AND ORDER
Introduction
William Plante has sued Foster Klima Company, LLC ("FK"), Timothy Foster, Douglas Flink, and John McGurran (collectively "the individual defendants") alleging claims under state and federal law. His claims are based on a failure of the parties to reach an agreement regarding a redemption package to compensate Plante for his ownership interest in FK upon his departure from the company. FK and the individual defendants have moved for summary judgment on all claims. The Court finds Plante's federal claims cannot survive summary judgment. Because they are the sole basis for this Court's jurisdiction, and because the Court has determined not to exercise supplemental jurisdiction over the remaining state law claims, this action will be dismissed.
Background
The dispute at the heart of this case arose from a business relationship between Plante and two of the defendants, Flink and McGurran. Each was a one-third owner of FK, a general agency for The Guardian Life Insurance Company ("Guardian"). (Talsness Dep. Tr. at 16; Flink Dep. Tr. at 55-56.) In October 2002 this business relationship broke down to such an extent that Flink and McGurran decided they could no longer work with Plante. (Flink Dep. Tr. at 55-56.) In mid-October 2002, Flink and McGurran presented a redemption proposal to Plante through more neutral members of the business. (Id. at 57; Plante Dep. Ex. 8.) Negotiations between the parties ensued, Plante decided to leave FK as Flink and McGurran requested, and the parties signed a Redemption and Settlement Proposal ("Redemption Proposal") on November 13, 2002. (Plante Dep. Ex. 13.) The Redemption Proposal listed certain terms of Plante's buyout and provided that the parties would execute a final binding agreement at some point in the future. (Id.) Plante resigned from FK on November 16, 2002, and has not worked there since. (Flink Dep. Ex. 5.)
After November 13, 2002, the relationships between the parties further deteriorated, and to date no final redemption agreement has been reached. It is apparent from the deposition testimony and briefing that each party blames the other for the breakdown in the negotiations. One term of the Redemption Proposal provided: "Company will pay for and continue (directly as a consultant or through COBRA reimbursement) all group insurance benefits that Plante currently receives until the earlier of November 1, 2003, or the date he takes a new job." (Plante Dep. Ex. 13 ¶ 5.) In fact, Plante was not covered by health insurance beginning in January 2003. The health plan at issue was provided through, and administered by, Guardian.
The Redemption Proposal also provided that FK would pay Plante $30,000 upon the execution of a final agreement, $12,500 a month for one year from the redemption date, and $30,000 annually until March 2, 2012. (Id. ¶¶ 2-4.) Further, under the Redemption Proposal Plante would be subject to a non-compete term for one year. (Id. ¶ 7.)
Plante has sued FK and the individual Defendants alleging four claims: (1) violation of Minnesota Statute § 322B.833; (2) frustration of his expectation of continuing employment with the company; (3) promissory estoppel; and (4) violations of the Employee Retirement Income Security Act ("ERISA") and the Consolidated Omnibus Budget Reconciliation Act ("COBRA"). The Court has federal question jurisdiction over the ERISA and COBRA claims under 28 U.S.C. § 1331, and has supplemental jurisdiction over the three state law claims under 28 U.S.C. § 1367. The bulk of this case revolves around the state law claims. For the reasons set forth below, the Court determines that Plante's COBRA and ERISA claims (the sole basis for jurisdiction in this case) cannot survive summary judgment. The Court will decline to exercise supplemental jurisdiction over the remaining state law claims.
For example, the parties devote 3 pages of briefing to the ERISA/COBRA claims, and 29 pages to the state law claims (not including the lengthy and complex fact sections dealing mainly with facts pertinent only to the state law claims).
Standard of Review
Summary judgment is proper if, drawing all reasonable inferences favorable to the nonmoving party, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986). The moving party bears the burden of showing that the material facts in the case are undisputed. See Celotex, 477 U.S. at 322; Mems v. City of St. Paul, Dep't of Fire Safety Servs., 224 F.3d 735, 738 (8th Cir. 2000). The court must view the evidence, and the inferences that may be reasonably drawn from it, in the light most favorable to the nonmoving party. See Graves v. Arkansas Dep't of Fin. Admin., 229 F.3d 721, 723 (8th Cir. 2000);Calvit v. Minneapolis Pub. Schs., 122 F.3d 1112, 1116 (8th Cir. 1997). The nonmoving party may not rest on mere allegations or denials, but must show through the presentation of admissible evidence that specific facts exist creating a genuine issue for trial. See Anderson, 477 U.S. at 256; Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995).
Analysis
Plante's COBRA/ERISA claims present two issues: (1) whether FK failed to provide timely notice to Plante of his rights under COBRA, and (2) whether FK and the individual defendants interfered with his right to maintain health benefits in violation of ERISA by notifying Guardian that he was no longer an employee or member of the company, and by instructing FK's office manager to cancel his health benefits after Plante's resignation.
I. Failure of FK to give proper notice under COBRA.
Plante claims that FK violated his rights under COBRA by "failing to provide him timely notice . . . in violation of 29 U.S.C. § 1161(a)." (Compl. ¶ 49.) "COBRA compels employers that sponsor certain group health plans to provide qualified beneficiaries with the option of receiving self-paid continuation coverage for eighteen . . . months after a qualifying event which would otherwise result in termination of coverage." McGee v. Funderburg, 17 F.3d 1122, 1124 (8th Cir. 1994) (citations omitted). Thus, upon the happening of a "qualifying event," an employee or beneficiary's rights under COBRA are triggered. 29 U.S.C. § 1161(a). Termination of employment is a "qualifying event." Id. at § 1163(2); see also Mlsna v. Unitel Communications, Inc., 41 F.3d 1124, 1128 (7th Cir. 1994) (holding that under § 1163(2), "termination" means "when an employee actually stops working for an employer").
COBRA provides that a qualified beneficiary is entitled to notice of his rights under the statute. 29 U.S.C § 1166(a)(4). The plan "administrator," defined as "the person specifically so designated by the terms of the instrument under which the plan is operated," is required to provide that notice. Id. §§ 1166(a)(4), 1002(16)(A)(i). If a plan designates an administrator, that individual or entity is held liable if the notice requirements under COBRA are not satisfied. Lincoln Gen. Hosp. v. Blue Cross/Blue Shield of Nebraska, 963 F.2d 1136, 1139 (8th Cir. 1992) ("Providing appropriate notice is a key requirement under COBRA. . . . If the administrator fails to provide that notice to the qualified beneficiary, it may be bound to provide coverage to her."); McDowell v. Krawchison, 125 F.3d 954, 962 (6th Cir. 1997) ("COBRA clearly places the burden of providing notice on the `administrator.'"); cf. Chesnut v. Montgomery, 307 F.3d 698, 700 (8th Cir. 2002) (holding that plan sponsor was required to give notice in accordance with § 1002(A)(ii) only because the "policy did not name a plan administrator").
Plante claims that FK violated his COBRA rights by failing to provide him with proper notice. FK, however, did not have a duty to notify Plante of his COBRA rights. All of the parties agree that Guardian, not FK, is the administrator of the health plan. (Talsness Dep. Tr. at 43 ("Guardian is actually the administrator"); Plante Dep. Tr. at 96 ("Q: . . . continuation of coverage under COBRA . . . information [is] supposed to come from Guardian, true? A: After they've been notified from the branch office that the person . . . has been terminated."); see also Flink Aff. ¶ 4.) The health plan at issue in this case also identifies Guardian as the administrator. (Shillingstad Aff. Ex. D at 1.) Thus, as Guardian is the administrator of the plan, Guardian (and no one else) is required to provide notice under COBRA. Because Guardian is not a party to this lawsuit, Plante's COBRA claim against the defendants here fails as a matter of law.
II. Interference with Plante's ERISA rights.
Plante asserts that FK unlawfully interfered with his ERISA rights by informing Guardian that he had resigned from the company, and by instructing the office manager at FK to cancel Plante's benefits after his resignation. Section 510 of ERISA "offers protection against two types of conduct: adverse action taken because a participant availed himself of an ERISA right (an `exercise' or `retaliation' violation), and interference with the attainment of a right under ERISA (an `interference' violation)."Coomer v. Bethesda Hosp., Inc., 370 F.3d 499, 506 (6th Cir. 2004) (citation omitted). Plante is only alleging an interference claim in the instant case. (Mem. in Opp'n at 19-20.) With respect to interference, ERISA provides that it is unlawful for "any person to . . . discriminate against a participant . . . for the purpose of interfering with the attainment of any right to which such a participant may become entitled under the plan. . . ." 29 U.S.C. § 1140. Section 510 claims are analyzed using theMcDonnell Douglas burden shifting standard. Curby v. Solutia, Inc., 351 F.3d 868, 871 (8th Cir. 2003) (citations omitted). Thus, for Plante to survive summary judgment on his interference claim, he must establish a prima facie case by showing "(1) prohibited (adverse) employer action (2) taken for the purpose of interfering with the attainment of (3) any right to which [he] is entitled." Bodine v. Employers Cas. Co., 352 F.3d 245, 250 (5th Cir. 2003) (citation omitted); see Curby, 351 F.3d at 871.
According to Plante, maintenance of benefits through Guardian was his statutorily protected right, and FK's actions leading to Guardian's termination of his benefits constituted discrimination against him for the purpose of interfering with his ERISA rights. The Court finds, however, that because the Redemption Proposal does not constitute an ERISA plan, Plante does not have a right to health benefits under an ERISA plan. As such, Plante has not established a prima facie case of interference because he does not have a federally protected right to FK-provided benefits. While the Redemption Proposal provides for continued health benefits, "[a]n arrangement to provide benefits to [an] employee does not invoke ERISA's protections solely because it delivers benefits." Eide v. Grey Fox Technical Servs. Corp., 329 F.3d 600, 605 (8th Cir. 2003).
Plante alleges this violated his ERISA rights because the "cancellation occurred even though the parties were still finalizing the terms of the Redemption Agreement, and even though the agreement provided that FK would pay for such coverage for another year." (Mem. in Opp'n at 20.) Further, he claims that Flink or McGurren instructed the office manager at FK to cancel Plante's benefits in December 2002 (though the office manager testified that she refused to do so). (Id.; Talsness Dep. Tr. at 70-72, 85.) These allegations are only relevant, however, if Plante had a right under ERISA to health benefits provided by FK, and the Court finds that he did not.
Plante resigned from FK on November 16, 2002 and has not had an employment relationship with the company since. Because he resigned, his claim cannot reasonably be based on his continued employment at FK. It is undisputed that Plante had (and may still have) the right to continued coverage under COBRA, as termination of employment is a qualifying event under the statute and Guardian's health plan. Plante's rights to continued coverage materialized when he resigned from FK and when Guardian was notified of his resignation. That notification, however, is the very act that Plante alleges was interference in violation of section 510. His claim is without merit, as FK's alleged actions could only trigger, not interfere with, Plante's right to COBRA coverage. Thus, the only ERISA rights that could be the subject of a section 510 claim would have to stem from the Redemption Proposal.
At oral argument, Plante's counsel did not dispute that Plante had resigned from FK; he stated, however, that Plante's resignation was undertaken in reliance on the continuation of health benefits (among other things). It is unclear whether this argument was an attempt to raise an equitable estoppel theory of recovery under ERISA. Even if it were, however, such an argument does not establish an actionable federal claim, as "[c]ourts may apply the doctrine of estoppel in ERISA cases only to interpret ambiguous plan terms. . . ." Fink v. Union Cent. Life Ins. Co., 94 F.3d 489, 492 (8th Cir. 1996) (citation omitted); Slice v. Sons of Norway, 34 F.3d 630, 635 (8th Cir. 1994) (agreeing with case for proposition that estoppel claim fails unless it "would merely hold [an] employer to a plausible interpretation of [a] plan"). As the following discussion makes clear, the Redemption Proposal does not constitute an ERISA plan; thus, an analysis of the Redemption Proposal's provisions would not be subject to equitable estoppel claims under ERISA.
The question then becomes whether the Redemption Proposal is itself an ERISA plan; if it is not, the section 510 claim fails, as this Court can find no other source giving rise to Plante's rights under the federal statute. See, e.g., Shahid v. Ford Motor Co., 76 F.3d 1404, 1409 n. 1 (6th Cir. 1986) (determining whether voluntary termination plan was ERISA plan before applying section 510 analysis). An agreement between employer and employee regarding post-employment benefits may be an ERISA plan even if it only pertains to one employee. See, e.g., Williams v. Wright, 927 F.2d 1540, 1545 (11th Cir. 1991) ("[A] plan covering only a single employee, where all other requirements are met, is covered by ERISA."). When analyzing a given agreement, however, "arrangements that involve a single employee quite understandably have been met with a particularly careful scrutiny." Cvelbar v. CBI Illinois Inc., 106 F.3d 1368, 1375 (7th Cir. 1997) (holding agreement was ERISA plan, and stating that "it is worth noting that it is not at all clear that it is appropriate to characterize the situation before us as a `one-person' plan"),abrogated on other grounds International Union of Operating Eng'rs, Local 150, AFL-CIO v. Rabine, 161 F.3d 427 (7th Cir. 1998). Thus, a commitment on the part of an employer to maintain benefits for an employee after she has stopped working for the company may often be "properly characterized as [a] simple contract between an employee and employer." Id.
Plante has not directed the Court's attention to any provision of Guardian's health plan that would require FK to pay for Plante's health benefits after his resignation. This failure is fatal to his claim, as "[t]he ability to claim benefits is set by the plan's terms. . . ." Koons v. Aventis Pharms., Inc., 367 F.3d 768, 777 (8th Cir. 2004). While an employer may agree to provide benefits to an employee after his resignation, the failure of an employer to do so is not an ERISA violation. See Stiltner v. Beretta U.S.A. Corp., 74 F.3d 1473, 1484 (4th Cir. 1996) ("ERISA § 510 does not preclude an employer from revoking gratuitous benefits."). Thus, the fact that Plante stopped working at FK may entitle him to continued coverage, but does not mandate that FK pay his premiums.
In Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987), the Supreme Court established the framework under which courts are to determine whether a given agreement is a "simple contract" or an ERISA plan. The Court held that a system of employer-provided benefits will be governed by ERISA if the providing of those benefits "necessitate[s] an ongoing administrative scheme." 482 U.S. at 18-19. An "ongoing administrative scheme" may be needed if the determination of an employee's eligibility for and level of benefits requires an employer to "analyze each employee's particular circumstances in light of the appropriate criteria."Kulinski v. Medtronic Bio-Medicus, Inc., 21 F.3d 254, 257 (8th Cir. 1994). In Kulinski, the Eighth Circuit applied Fort Halifax and held that a plan providing for the payment of a lump sum of money to an employee upon the happening of a certain event (termination, resignation, or hostile takeover of the company) was not an ERISA plan. Id. at 255, 258. The court found significant that once a triggering event occurred, "there was nothing for the company to decide, no discretion for it to exercise, and nothing for it to do but write a check . . . such a simple mechanical task does not require the establishment of an administrative scheme." Id. at 258.
In Delaye v. Argipac, Inc., 39 F.3d 253 (9th Cir. 1994), the Ninth Circuit applied the reasoning of Fort Halifax to a plan similar to the Redemption Proposal in this case. The agreement inDelaye provided that if the CEO was terminated without cause, the employer would "pay him a fixed monthly amount for twelve to twenty-four months according to a set formula, plus accrued vacation pay and insurance benefits." Id. at 237. The court held that, despite the possibility that the plan would require the employer to make payments to the plaintiff for two years, the agreement was not a plan under ERISA. The fact that there was "nothing discretionary about the timing, amount or form of the payment," weighed against the existence of an ERISA plan. Id. Similarly, the court held that "[s]ending . . . a single employee a check every month plus continuing to pay his insurance premiums for the time specified in the employment contract does not rise to the level of an ongoing administrative scheme." Id.
When the principles set forth in Fort Halifax, Kulinski, and Delaye are applied here, it is clear that the Redemption Proposal between Plante and FK does not constitute an ERISA plan. The monetary provisions of the Redemption Proposal do not involve the exercise of any discretion by the company, and a separate administrative scheme would not be required. Like the agreement in Delaye, the Redemption Proposal simply requires regular payments of a fixed amount, as well as a continuation of benefits for one year or until Plante finds a new job. While the payments would occur on a monthly basis for a year, and there would be one payment on a yearly basis for a number of years, this type of periodic payment in and of itself does not transform the agreement into an ERISA plan. See Delaye, 39 F.3d at 237; see also Herring v. Oak Park Bank, 963 F. Supp. 1558, 1566 (D. Kan. 1997) ("The fact that the [employer] might have had to (and in fact did) write and send out several checks instead of just one . . . does not create an ongoing administrative scheme under Fort Halifax."). Nor does the fact that Plante's health benefits would be continued for a year or until he found new employment have a determinative effect. See id. (agreement provided for the continuation of insurance benefits); Angst v. Mack Trucks, Inc., 969 F.2d 1530, 1538-39 (3rd Cir. 1992) (buyout offered to employees included a year of continued benefits and was not an ERISA plan); Fontenot v. NL Indus., Inc., 953 F.2d 960, 961 (5th Cir. 1992) (agreement whereby employee would be paid lump sum as well as "a three year continuation of certain benefits" was not an ERISA plan).
The yearly payment of $30,000 for ten years is a factor that weighs in favor of finding an ERISA plan. See Eide, 329 F.3d at 605-06 (noting that severance benefits resulting in "periodic demands on [the employer's] assets that create a need for financial coordination and control" may constitute an ERISA plan (internal quotation omitted)). In Eide, however, the court found that an employer's promise to pay twenty-seven employees severance benefits was not an ERISA plan. Id. The court found significant the fact that the benefits would not create an on-going demand on the employers assets in part because "the amount of the severance pay to be distributed to Employees upon their termination was set as of the last date of Employees' employment." Id. at 605. Here, while the form of the payments would be periodic, the amount of FK's obligation would be set upon reaching a final agreement as in Eide, and there would be no discretion or contingency involved in those payments.
Further, the Redemption Proposal is distinguishable from the types of plans that courts have determined are governed by ERISA. For example, in Williams, the Eleventh Circuit determined the plan at issue was governed by ERISA, and pointed to the discretionary aspects of the plan: i.e., the company would make payments "`until [employee's] death or when [employee has] no use for [the benefits],'" and payment changes would be made if the arrangement did not "`fill all needs as anticipated.'" 927 F.2d at 1544-45. As noted above, no such discretion exists on the part of either party to the Redemption Proposal. In Cvelbar, the Seventh Circuit held that a retirement agreement was an ERISA plan and emphasized that it required "managerial discretion." 106 F.3d at 1377-78 (7th Cir. 1997). The agreement provided, inter alia, that the employer "had to determine the reason for [the employee's] termination . . . monitor whether [the employee] competed against the company within three years of termination . . . [and] reevaluate the Agreement every year to determine whether it should be extended another year." Id. While the Redemption Proposal in this case contains a non-compete clause, it is only for one year as opposed to the three-year term inCvelbar. The Redemption Proposal does not involve the discretion, administration, or complexity required to qualify as an ERISA plan.
The agreement in Cvelbar also provided medical benefits to the retiree. In that case, however, benefits were provided until the retiree reached the age of 65 or until he started receiving benefits under a retirement plan. The company was also required to determine the level and amount of benefits he would receive based on the retirement plan in existence there.Cvelbar, 106 F.3d at 1378. The complexity and discretionary nature of the Cvelbar plan distinguishes it from the Redemption Proposal.
Based on the foregoing, the Court concludes that Plante did not have a right under ERISA to have his health insurance paid for by FK after his resignation. Because Plante cannot establish such a fundamental aspect of an ERISA claim — the presence of an ERISA right — the Court ends its analysis there. Plante failed to establish a prima facie case under section 510 of ERISA, and as such, his claim will be dismissed.
III. Summary.
Plante's COBRA claim fails because FK did not have a duty to notify him under the statute. Furthermore, as Plante has not established that he has a right to FK-provided medical insurance under ERISA, his claim of interference under section 510 of the Act fails. See Curby, 351 F.3d at 873 (holding that "since [the plaintiff] has no right to benefits under [the agreement], her claim that [her employer] interfered with her right to ERISA benefits fails . . ."). Because the Court "has dismissed all claims over which it has original jurisdiction," it may decline to continue to exercise supplemental jurisdiction over the remaining state law claims. 28 U.S.C. § 1367(c)(3);see Ferris Baker Watts, Inc. v. Ernst Young, LLP, 293 F. Supp. 2d 1003, 1008 (D. Minn. 2003). While both parties may prefer to remain in federal court, the Court concludes that it will not continue to exercise supplemental jurisdiction over the complex state law issues raised in this case.
In fact, the Court may not have a choice in the matter.See Eide, 329 F.3d at 608 ("Where, as here, federal subject matter jurisdiction is based on ERISA, but the evidence fails to establish the existence of an ERISA plan, the claim must be dismissed for lack of subject matter jurisdiction.").
Conclusion
Based on the foregoing, and all of the files, records and proceedings herein, IT IS ORDERED that Defendants' Motion for Summary Judgment (Doc. No. 19) is GRANTED IN PART and Count IV of the Complaint (Doc. No. 1) is DISMISSED WITH PREJUDICE. The Court declines to exercise supplemental jurisdiction over the remaining state law claims set forth in Counts I, II, and III of the Complaint and these claims are DISMISSED WITHOUT PREJUDICE.