Summary
recognizing that Wall erroneously relied on Gerhardt and holding that the Texas legislature "expressly abrogated the de facto merger doctrine as articulated in Gerhardt."
Summary of this case from Lickteig v. Tri-Steel Structures, Inc.Opinion
Civ. No. 3:97-CV-3153-L.
March 3, 2000.
MEMORANDUM OPINION AND ORDER
Before the court are Defendant HRC Autostaff's Motion for Summary Judgment, filed March 12, 1998, Plaintiff's Motion for Summary Judgment Against HRC Autostaff, Inc. and Unum, filed June 16, 1998, Defendant Unum Life Insurance Company of America's Motion for Summary Judgment, filed July 6, 1998, and Defendant HRC Autostaff's Motion for Summary Judgment, filed July 6, 1998. The court has carefully considered the motions, responses, replies, the record evidence, and the applicable law. For the reasons that follow, Defendants HRC Autostaff Inc. and Unum Life Insurance Company of America's Motions for Summary Judgment are granted. Plaintiff's Motion for Summary Judgment is denied.
I. Factual and Procedural Background
Michael Kurt Drechsler ("Drechsler") was an employee of AutoStaff, Inc. ("AutoStaff"). In December 1993 AutoStaff implemented benefits under its Group Plan for Employees of AutoStaff Plan Number 501 (the "Plan"). Funding of life insurance benefits under the Plan was provided by Liberty Life Assurance Company of Boston ("Liberty Life"). A $50,000 certificate of life insurance was issued to Drechsler. Drechsler ceased working for AutoStaff on November 30, 1994 because of fatigue caused by AIDS, and made a claim for disability benefits.
The facts presented herein are mostly undisputed, however, where they are disputed they are presented in the light most favorable to the non-moving party.
In December 1994 AutoStaff changed the Plan's life insurance benefits by replacing the Liberty Life policy with a Unum Life Insurance Company of America ("Unum") policy (the "Policy"). Effective January 1, 1995, AutoStaff employees were given the option to elect coverage in $10,000 units up to five times their salary, to a maximum of $500,000. On March 21, 1995, Drechsler received a letter from Kathy Karlin ("Karlin") of AutoStaff that stated:
I could find no re-enrollment paperwork for you for 1995. I have enclosed a Unum form for Optional Life as you had Optional Life coverage in 1994 and I'm assuming you will want to continue that. Unum grandfathered all employees who were on previously but needs a new form completed. Please complete the Unum app (if you want to continue coverage) and return to me ASAP with the appropriate premium.
Plaintiff's Motion for Summary Judgment ("Plaintiff's Motion") at Exh. A.
Karlin also attached a note to the Unum form asking Drechsler to "[p]lease complete the last page and return ASAP! Ignore all reference to pre-ex as Unum is grandfathering all employees on in 94."
Id. at Exh. B.
The enrollment form required Drechsler to certify that he read and understood the information about delayed effective dates and exclusions found on the reverse side of the form. The reverse side of the form states that "insurance will be delayed for an employee if she/he is not in active employment because of an injury, sickness, temporary lay-off, or leave of absence on the date that insurance would otherwise be effective." The Policy also contains this language and adds that "[t]he initial, increased, or additional insurance will start on the date that person returns to active employment."
Affidavit of Kenneth Barber ("Barber Aff.") at Exh. B.
Id. at p. EFF-4.
Drechsler completed the enrollment form and selected coverage in the amount of $100,000. He named Plaintiff Donald Mims ("Mims") as the beneficiary of the Policy. Drechsler's monthly premiums were paid to AutoStaff, who then forwarded the premiums to Unum. AutoStaff never informed Unum that Drechsler was not actively working as of the January 1, 1995 effective date of the Policy.
Defendant HRC Autostaff, Inc. ("HRC") was formed on August 25, 1995. HRC then acquired various assets of AutoStaff on August 30, 1995. Under the terms of the purchase agreement, HRC acquired title to AutoStaff's operating assets, including interest in workers compensation and tax accounts, interest in 401k accounts, ownership of a related insurance entity, and all rights and title to the use of the word "AutoStaff." The purchase agreement further states that "it is understood that, in connection with the purchase of AutoStaff Assets . . . Buyer is not assuming any of the liabilities of [AutoStaff] except to the extent specifically provided for in this Agreement." After the purchase of the AutoStaff assets, HRC collected Drechsler's monthly premiums and forwarded them to Unum, as AutoStaff had done previously.
Purchase Agreement at ¶ 5.
Drechsler died on April 17, 1997, and on April 28, 1997 Mims submitted a claim form to Unum. On the claim form, Mims stated that Drechsler's last day of work at AutoStaff was "January 1995." After receiving the claim, Unum contacted Michael Burton ("Burton") at HRC. Burton informed Unum that Drechsler's last day of work was November 30, 1994, and that he never returned to work prior to his death. Unum then informed HRC that because Drechsler's last day worked was prior to the effective date of the Policy, Drechsler was not covered by the Policy. Unum refunded Drechsler's premiums to HRC, instructed HRC to refund them to Mims, and suggested that the claim be forwarded to Liberty Life, the prior carrier.
Barber Aff. at Exh. D, p. 88.
Mims appealed Unum's decision to deny death benefits under the Policy. On August 19, 1997, Unum again confirmed with HRC that Drechsler's last day of work was prior to the Policy's January 1, 1995 effective date. On that same date Mims' appeal was denied by Unum. On September 8, 1997 Mims asked Unum to review the claim again. Unum upheld the denial of the claim in a letter to Mims' attorney dated September 30, 1997. Minis filed suit in state court against HRC and Unum on December 3, 1997, alleging claims for negligent misrepresentation, breach of contract, and breach of fiduciary duty. Unum removed the case to this court on December 23, 1997. HRC and Unum now move for summary judgment on all of Mims' claims.
See Plaintiff's First Amended Petition ("Petition").
II. Summary Judgment Standard
Summary judgment shall be rendered when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that 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, 323-25 (1986); Ragas v. Tennessee Gas Pipeline Company, 136 F.3d 455, 458 (5th Cir. 1998). A dispute regarding a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a motion for summary judgment, the court is required to view all inferences drawn from the factual record in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986); Ragas, 136 F.3d at 458.
Once the moving party has made an initial showing that there is no evidence to support the nonmoving party's case, the party opposing the motion must come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at 586. Mere conclusory allegations are not competent summary judgment evidence, and thus are insufficient to defeat a motion for summary judgment. Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir. 1996). Unsubstantiated assertions, improbable inferences, and unsupported speculation are not competent summary judgment evidence. See Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir.), cert denied, 513 U.S. 871 (1994). The party opposing summary judgment is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his claim. Ragas, 136 F.3d at 458. Rule 56 does not impose a duty on the court to "sift through the record in search of evidence" to support Plaintiff's opposition to Defendants' motion. Id., Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915-16 n. 7 (5th Cir.), cert. denied, 506 U.S. 832 (1992). "Only disputes over facts that might affect the outcome of the suit under the governing laws will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248. Disputed fact issues which are "irrelevant and unnecessary" will not be considered by a court in ruling on a summary judgment motion. Id. If the nonmoving party fails to make a showing sufficient to establish the existence of an element essential to its case and on which it will bear the burden of proof at trial, summary judgment must be granted. Celotex, 477 U.S. at 322-23.
III. Unum's Motion for Summary Judgment
Mims has alleged claims against Unum for negligent misrepresentation under state law, and two federal ERISA claims for breach of contract and breach of fiduciary duty. Unum has moved for summary judgment on all three claims.
A. Negligent Misrepresentation
Mims alleges that Unum misrepresented Drecshler's coverage under the Policy and "enhanced" its misrepresentation by regularly accepting his premium payments. ERISA preempts all state laws "insofar as they may . . . relate to any employee benefit plan." 29 U.S.C. § 1144(a); Hansen v. Continental Ins. Co., 940 F.2d 971, 979 (5th Cir. 1991). When beneficiaries seek to recover from a plan covered by ERISA, ERISA provides their exclusive remedy. Hansen, 940 F.2d at 979; Degan v. Ford Motor Co., 869 F.2d 889, 893 (5th Cir. 1989). ERISA's preemptive scope includes claims for misrepresentation. Hansen, 940 F.2d at 979; E-Systems, Inc. v. Taylor, 744 S.W.2d 956, 959-60 (Tex.App.-Dallas 1988, writ denied). Therefore, Mims' negligent misrepresentation claim is preempted by ERISA, and Unum is entitled to summary judgment on this claim.
Petition at p. 6.
B. Breach of Contract and Breach of Fiduciary Duty
Unum contends that it its entitled to summary judgment on Mims' breach of contract and fiduciary duty claims because Drechsler was never covered under the Policy. Specifically, Unum argues that Drechsler's coverage never went into effect under the Policy's provision for delayed effective dates for employees who were not actively working on January 1, 1995. It is undisputed that Drechsler was not in active employment on January 1, 1995, and Mims has set forth no evidence supporting his position that the Policy terms that delayed the effective date of Drechsler's coverage did not apply to him. Although Karlin's note instructed Drechsler to ignore any references to exclusions for preexisting conditions, she made no reference to any other policy provisions or restrictions. The enrollment form that Drechsler completed and the Policy itself both state that coverage will be delayed for employees who were not working at least 30 hours per week as of the Policy's effective date. Because Drechsler never returned to work after the Policy's effective date, his life insurance coverage was never activated. Unum is entitled to summary judgment on Mims' breach of contract claim.
Similarly, the court finds that summary judgment should be granted for Unum on Mims' breach of fiduciary duty claim. ERISA allows a plan beneficiary to bring a breach of fiduciary duty suit for the benefit of the subject plan. 29 U.S.C. § 1109(a), 1132(a)(2); Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 140 (1985); Tolson v. Avondale Industries, Inc., 141 F.3d 604, 610 (5th Cir. 1998). As stated above, Mims is not entitled to Plan benefits because Drechsler's coverage under the Policy never became effective. It is undisputed that Unum did not know that Drechsler was not actively working until after it received Mims' claim for death benefits. Because Drechsler was never insured under the Policy, no fiduciary duty arose between him (or Mims) and Unum. Therefore, the court will grant summary judgment for Unum on this claim.
IV. HRC's Motion for Summary Judgment
HRC argues that summary judgment is warranted because it did not assume the liabilities of AutoStaff when it acquired AutoStaff's operating assets. HRC argues that it has always been a separate entity from AutoStaff, and that in fact it was not yet in existence when AutoStaff allegedly represented to Drechsler that he was eligible for the Unum life insurance policy. Mims responds that HRC is liable for its own conduct after August 25, 1995, and that it is also liable for AutoStaff's prior conduct under a successor liability theory.
A. Successor Liability
HRC contends that it is not responsible for AutoStaff's actions prior to its acquisition of the AutoStaff assets on August 30, 1995. In response, Mims contends that HRC is liable for AutoStaff's alleged misconduct because the asset acquisition was a de facto merger of HRC and AutoStaff. In support of this argument, Mims relies on Wall v. Owens-Corning Fiberglas Corp., 602 F. Supp. 252, 255 (N.D. Tex. 1985) and Western Resources Life Ins. Co. v. Gerhardt, 553 S.W.2d 783, 786 (Tex.App.-Austin 1977, writ ref'd n.r.e.). In Western Resources, the court held that a purchasing corporation cannot escape liability for the torts of the transfer or corporation where the transferee corporation expressly or impliedly assumes the liabilities, or where the transaction is tantamount to a merger. 553 S.W.2d at 786. The court in Wall relied on the holding of Western Resources to hold that a corporation who purchased another company's assets also impliedly acquired any encumbering liabilities. 602 F. Supp. at 255. Mims urges the court to do the same here, and find that HRC is liable for any errors or omissions of AutoStaff prior to the time of the asset acquisition.
The court is unable to do so because the Texas legislature has expressly abrogated the de facto merger doctrine as articulated in Western Resources. Tex. Bus. Corp. Act art. 5.10(B)(2) (Vernon 1999); see also 1979 and 1996 Bar Committee Comments to art. 5.10.
This section of the Texas Business Corporation Act states:
B. A disposition of any, all, or substantially all, of the property and assets of a corporation, . . .
(1) is not considered to be a merger or conversion pursuant to this Act or otherwise; and
(2) except as otherwise expressly provided by another statute, does not make the acquiring corporation, foreign corporation, or other entity responsible or liable for any liability or obligation of the selling corporation that the acquiring corporation, foreign corporation, or other entity did not expressly assume.
Tex. Bus. Corp. Act art. 5.10(B)(2). Numerous courts have recognized that under Texas law, a successor corporation that purchases all or substantially all of a predecessor corporation's assets is not liable for the predecessor's obligations except where such liability is expressly assumed. See, e.g., Glasscock v. Armstrong Cork Co., 946 F.2d 1085, 1094-95 (5th Cir. 1991), cert. denied, 503 U.S. 1011 (1992); McKee v. American Transfer and Storage, 946 F. Supp. 485, 487 (N.D. Tex. 1996); Mudgett v. Paxson Machine Co., 709 S.W.2d 755, 758 (Tex.App.-Corpus Christi 1986, writ ref'd n.r.e.).
Here, the asset purchase agreement between AutoStaff and HRC expressly states that HRC did not assume the liabilities of AutoStaff. Mims' position that HRC must be held liable as successor to AutoStaff is untenable under Texas law. HRC has no liability for the actions of AutoStaff giving rise to this case.
B. HRC's Liability for its Conduct After August 25, 1995
Alternatively, Mims argues that because HRC became the Plan's administrator when it purchased AutoStaff's assets, HRC is liable to him for its own alleged misconduct following the asset acquisition. Mims contends that while AutoStaff may have made the original misrepresentation regarding Drechsler's eligibility for coverage under the Unum policy, HRC continued this misrepresentation when, after acquiring AutoStaff's assets, it continued collecting Drechsler's premiums and forwarded them to Unum. Mims has sued HRC for negligent misrepresentation, breach of contract, and breach of fiduciary duty.
1. Negligent Misrepresentation
Based upon HRC's actions after it acquired the AutoStaff assets in August 1995, Mims has alleged a state law claim against HRC for negligent misrepresentation. As discussed above, this claim is preempted by ERISA. Hansen, 940 F.2d at 979; E-Systems, 744 S.W.2d at 959-60. Accordingly, it is summarily dismissed.
2. Breach of Contract
Mims' second claim against HRC is for breach of contract. Minis alleges that HRC's failure "to pay benefits under [its] ERISA plan" constitutes a breach of HRC's employee benefit plan. HRC argues that summary judgment is appropriate because the only contract at issue in this case is the insurance contract between Drechsler and Unum. HRC's only actions in this case were that of accepting the premiums from Drechsler and forwarding them to Unum. Mims admits that HRC accepted the premiums as an agent for Unum. Although HRC became Plan administrator when it acquired the AutoStaff assets, Mims has failed to identify any contractual relationship between him or Drechsler and HRC. HRC is entitled to summary judgment on this claim.
Petition at p. 7.
Plaintiff's Motion at p. 5.
3. Breach of Fiduciary Duty
As a plan beneficiary, Mims is permitted to bring a breach of fiduciary duty suit against HRC, the Plan's administrator. 29 U.S.C. § 1109; Texas Life, Acc. Health Hosp. Service Ins. Guar. Ass'n v. Gaylord Entertainment Co., 105 F.3d 210, 214 (5th Cir.), cert. dism'd, 521 U.S. 1113 (1997). Liberally construed, Mims' Petition appears to allege that AutoStaff carelessly misled Drechsler to believe he was covered under the Unum Policy by sending him the enrollment form (with Karlin's note attached) and collecting premium payments from him. Although HRC became the Plan administrator after it acquired the AutoStaff assets, HRC is not liable for any breach of fiduciary duty by AutoStaff that occurred before HRC became the Plan's administrator. 29 U.S.C. § 1109(b). After HRC became the Plan administrator, it continued to collect Drechsler's premiums and sent them to Unum. This conduct was apparently caused by the confusion that arose back in early 1995, when AutoStaff was the Plan administrator. HRC committed no independent or new breach of fiduciary duty after taking over AutoStaff's role as Plan administrator. HRC is entitled to summary judgment on this claim.
V. Plaintiff's Motion for Summary Judgment
Mims has also moved for summary judgment against Unum and HRC. Granting this motion would be inconsistent with the court's rulings on Unum and HRC's motions for summary judgment. Accordingly, Plaintiff's Motion for Summary Judgment is denied.
VI. Conclusion
For the foregoing reasons, Defendants HRC Autostaff Inc. and Unum Life Insurance Company of America's Motions for Summary Judgment are granted. Plaintiff's Motion for Sumrnary Judgment is denied. Judgment will be entered by separate document.
It is so ordered this 3rd day of March, 2000.