Schmitz v. Benefitfocus.Com, Inc., et al

MOTION to Dismiss for Failure to State a Claim

W.D.N.C.November 18, 2016

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION File No.:3:16-783 ELIZABETH WOOTEN SCHMITZ, ) ) Plaintiff, ) ) v. ) ) BENEFITFOCUS.COM, INC., and , ) ) HARTFORD LIFE and ACCIDENT ) INSURANCE COMPANY, a/k/a THE ) HARTFORD ) ) Defendants. ) ) Defendant Benefitfocus.com, Inc. (“Benefitfocus”) moves to dismiss Plaintiff Elizabeth Wooten Schmitz’s First Claim for Relief pursuant to Rule 12(b)(6) of the Federal Rules of Civil procedure for failure to state a claim upon which relief can be granted. Benefitfocus submits its brief, filed concurrently, in support of this Motion. WHEREFORE, Benefitfocus respectfully requests that this Court dismiss Plaintiff’s First Claim for Relief with prejudice and grant Benefitfocus further relief as the Court deems just and proper. This 18th day of November, 2016. /s/ Rebecca Gauthier Marla T. Reschly (N.C. Bar No.46706) Rebecca Gauthier (N.C. Bar No. 50721) K&L GATES LLP Hearst Tower, 47th Floor 214 North Tryon Street Charlotte, NC 28202 Telephone: (704) 331-7414 Facsimile: (704) 353-3114 DEFENDANT BENEFITFOCUS.COM, INC.’S MOTION TO DISMISS PLAINTIFF’S FIRST CLAIM FOR RELIEF Case 3:16-cv-00783-FDW-DCK Document 8 Filed 11/18/16 Page 1 of 3 E-mail:marla.reschly@klgates.com E-mail: rebecca.gauthier@klgates.com Attorneys for Defendant Benefitfocus.com, Inc. Case 3:16-cv-00783-FDW-DCK Document 8 Filed 11/18/16 Page 2 of 3 CERTIFICATE OF SERVICE I hereby certify that on November 18, 2016, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of such filing to all counsel of record who are registered with the CM/ECF system. /s/ Rebecca Gauthier Rebecca Gauthier Case 3:16-cv-00783-FDW-DCK Document 8 Filed 11/18/16 Page 3 of 3 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION File No.: 3:16-cv-00783 ELIZABETH WOOTEN SCHMITZ, ) ) Plaintiff, ) ) v. ) ) BENEFITFOCUS.COM, INC., and ) ) HARTFORD LIFE and ACCIDENT ) INSURANCE COMPANY, a/k/a THE ) HARTFORD ) ) Defendants. ) ) Defendant Benefitfocus.com, Inc. (“Benefitfocus”), through counsel, submits this brief in support of its Motion to Dismiss Plaintiff Elizabeth Wooten Schmitz’s (“Plaintiff”) First Claim for Relief in the Amended Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. SUMMARY OF ARGUMENT Plaintiff has improperly asserted that Benefitfocus has breached the North Carolina Unfair and Deceptive Trade Practices Act (“UDTPA”), N.C. Gen. Stat. § 75-1.1. Specifically, Plaintiff has alleged that Benefitfocus violated § 75-1.1 by violating or contributing to a violation of N.C.G.S. § 58-58-140. Plaintiff’s theory, however, ignores the fact that Benefitfocus is not, and Plaintiff has not alleged that Benefitfocus is, an insurance company subject to Chapter 58. Because Benefitfocus is not capable of violating Chapter 58, Benefitfocus cannot have violated § 75-1.1 by violating Chapter 58. Accordingly, Benefitfocus asks that this Court grant its Motion to Dismiss Plaintiff’s First Claim for Relief in the Amended Complaint as Plaintiff has failed to state a claim upon which relief can be granted for a violation of the UDTPA. DEFENDANT BENEFITFOCUS.COM, INC.’S MEMORANDUM IN SUPPORT OF ITS MOTION TO DISMISS PLAINTIFF’S FIRST CLAIM FOR RELIEF Case 3:16-cv-00783-FDW-DCK Document 8-1 Filed 11/18/16 Page 1 of 6 STATEMENT OF FACTS The following facts, alleged by Plaintiff in her Amended Complaint, are accepted as true solely for the purposes of this Motion. The facts included herein are solely those necessary to a determination with regard to this Motion. Benefitfocus is a South Carolina Corporation registered to conduct business within North Carolina. Plaintiff has alleged that “Benefitfocus uses software and web tools to report on behalf of participating public agencies to their contracted life insurance carriers enrollment and participation information about their employees and former employees” and that Benefitfocus “reported” such information to Hartford Life and Accident Insurance Company, a/k/a The Hartford (“The Hartford”) with regard to the employment and enrollment status of Charlotte Mecklenburg Schools’ (“CMS”) employees. Amended Compl. ¶ 2. Plaintiff has not alleged that Benefitfocus is an insurance company or engages in the business of insurance. Plaintiff is the widow of now-deceased Adam Schmitz (“Schmitz”) and the named beneficiary on group life insurance policies Schmitz purchased while employed by CMS. Amended Compl. ¶ 1. Schmitz resigned from CMS on January 7, 2013, Amended Compl. ¶ 46, and later died on November 16, 2013. Amended Compl. ¶ 117. Plaintiff alleges that she should have received $109,300 from her husband’s life insurance policies. Amended Compl. ¶¶ 118. Plaintiff further alleges that she was denied recovery because of “[t]he failure to provide [her] timely notice of [Schmitz’s] conversion and portability rights and the forms needed to elect coverage, as arranged by CMS, Benefitfocus and the Hartford” upon Schmitz’s resignation from CMS. Amended Compl. ¶ 122. Case 3:16-cv-00783-FDW-DCK Document 8-1 Filed 11/18/16 Page 2 of 6 ARGUMENT I. MOTION TO DISMISS STANDARD Under Federal Rule of Civil Procedure 12(b), a party may move to dismiss a claim if the complaint has not “state[d] a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). In assessing such a motion, a court “must accept as true all of the factual allegations contained in the complaint.” Erickson v. Pardus, 551 U.S. 89, 94 (2007). To state a claim under Federal Rule of Civil Procedure 8(a)(2), a complaint must include “a short and plain statement of the claim showing that the pleader is entitled to relief” that “give[s] the defendant fair notice of what the claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations omitted). As a federal court sitting in diversity jurisdiction, this Court must “interpret and apply the substantive law” of North Carolina and offer its best judgment about what the North Carolina Supreme Court would do if presented with this case, giving “appropriate weight to the opinions of [North Carolina] intermediate appellate courts” where the North Carolina Supreme Court has not spoken. Food Lion, Inc. v. Capital Cities/ABC, Inc., 194 F.3d 505, 512 (4th Cir. 1999). II. PLAINTIFF’S FIRST CLAIM FOR RELIEF FAILS TO STATE A CLAIM UPON WHICH RELIEF MAY BE GRANTED AND SHOULD BE DISMISSED Plaintiff alleges that Benefitfocus committed an “unfair trade practice under N.C.G.S. § 75-1.1” by violating or contributing to a violation of N.C. Gen. Stat. § 58-58-140 by causing the Hartford’s “failure to provide Plaintiff timely notice of [Schmitz’s] conversion and portability rights and the forms needed to elect coverage.” Amended Compl. ¶ 122. Plaintiff alleges that Benefitfocus did so by “fail[ing] to provide the Hartford with notice that Adam Schmitz had resigned from employment, and fail[ing] to remedy the violation once it was discovered,” Case 3:16-cv-00783-FDW-DCK Document 8-1 Filed 11/18/16 Page 3 of 6 “failing to notify CMS or the effected [sic] employees of its error after it discovered the error,” and “tr[ying] to surreptitiously correct the error in its February 27, 2013 and May 15, 2013 reports to The Hartford.” Amended Compl. ¶¶ 123, 124, 125, 126. Section 58-58-140 requires that “[a] group [life] insurer . . . provide a conversion right” to an insured if he falls out of an “Eligible Class” so that he can convert coverage under a group policy into coverage under an individual policy. Corbett v. Fortis Benefits Ins. Co., No. 95-1794, 1996 WL 145232, at *1 (4th Cir. Apr. 1, 1996); see also N. C. Gen. Stat. § 58-58-140(8). North Carolina law further provides that violations of Chapter 58 may be brought under § 75-1.1 as violations of the UDTPA. See e.g. Pearce v. Am. Defender Life Ins. Co., 343 S.E.2d 174, 179 (N.C. 1986); Ellis v. Smith- Broadhurst, Inc., 268 S.E.2d 271, 273 (N.C. Ct. App. 1980). Nonetheless, only insurers are capable of violating Chapter 58. See Jacobs v. Physicians Weight Loss Ctr. Of Am., Inc., No. 00 CVS 7910, 2003 WL 22834340, at *8 (N.C. Super. Ct. Nov. 5, 2003) (holding that “the intent of [Chapter 58] is clearly to regulate insurance companies” and that claims under Chapter 58 cannot be maintained against a party that is not an insurance company because it “as a matter of law, . . . is not subject to Chapter 58.”). Because Benefitfocus is not, and Plaintiff has not alleged that Benefitfocus is, an insurance company, Benefitfocus cannot have violated Chapter 58. Plaintiff has not alleged that Benefitfocus “assumes risk on behalf of [] insured[s] in exchange for premiums” or “wager[s] that the total cost of services covered on behalf of the insured will not exceed the premiums paid by insured parties.” Jacobs, 2003 WL 22834340 at *8. Thus, the activities undertaken by Benefitfocus “do not remotely resemble that of the insurance industry” and “[t]he application of Chapter 58 to the conduct of [Benefitfocus] is inappropriate.” Id. Plaintiff’s Chapter 75 claim is specifically premised on and indistinguishable from her Chapter 58 claim and solely alleges that Case 3:16-cv-00783-FDW-DCK Document 8-1 Filed 11/18/16 Page 4 of 6 Benefitfocus violated § 75-1.1 by violating Chapter 58. Thus, because Chapter 58 does not apply to Benefitfocus, Plaintiff’s claim under § 75-1.1 necessarily fails as a matter of law. CONCLUSION For the reasons set forth above, Plaintiff has failed to allege a valid claim that Benefitfocus has violated the UDTPA. Accordingly, Benefitfocus asks that its Motion to Dismiss Plaintiff’s First Claim for Relief in the Amended Complaint, alleging the violation of the UDTPA, be granted by this Court. This 18th day of November, 2016. Respectfully submitted, /s/ Rebecca Gauthier Marla T. Reschly (N.C. Bar No.46706) Rebecca Gauthier (N.C. Bar No. 50721) K&L GATES LLP Hearst Tower, 47th Floor 214 North Tryon Street Charlotte, NC 28202 Telephone: (704) 331-7414 Facsimile: (704) 353-3114 E-mail:marla.reschly@klgates.com E-mail: rebecca.gauthier@klgates.com Attorneys for Defendant Benefitfocus.com, Inc. Case 3:16-cv-00783-FDW-DCK Document 8-1 Filed 11/18/16 Page 5 of 6 CERTIFICATE OF SERVICE I hereby certify that on November 18, 2016, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of such filing to all counsel of record who are registered with the CM/ECF system. /s/ Rebecca Gauthier Rebecca Gauthier Case 3:16-cv-00783-FDW-DCK Document 8-1 Filed 11/18/16 Page 6 of 6