Opinion
Civil Action No. 3:04-CV-0189-G.
September 15, 2004
MEMORANDUM ORDER
Before the court is the motion of the plaintiff Patrick Pridgen ("Pridgen") to remand this action to the 192nd Judicial District Court of Dallas County from which it was previously removed. For the following reasons, Pridgen's motion is denied.
I. BACKGROUND
Between May 2001 and November 2001, the defendant Texas Mutual Insurance Company ("Texas Mutual") employed Pridgen as an underwriter. Plaintiff's Original Petition ("Petition") ¶ 4, attached to Notice of Removal as Exhibit 3; Corrected Affidavit of Patrick D. Pridgen ("Pridgen Affidavit") ¶ 2. Texas Mutual is a self-described "non-governmental insurance company created to provide workers' compensation insurance to the employers of Texas." Defendant Texas Mutual Insurance Company's Response to Plaintiff's Motion to Remand ("Response") at 3.
As an employee of Texas Mutual, Pridgen was insured under a self-insured disability policy ("the Policy") administered by third party administrator Standard Insurance Company ("Standard") on behalf of Texas Mutual. Petition ¶ 4. Thus, Pridgen was an employee of Texas Mutual itself as well as an insured under Texas Mutual's Policy. Id. Because Pridgen suffered various back-related conditions, he concluded that he was entitled to benefits under the Policy. Id. ¶¶ 4, 5. Specifically, Pridgen contended that he "was entitled to benefits under the Policy from and after November 2001 because he was disabled within the meaning of the Policy." Id. ¶ 6.
By letters dated January 28, 2002, May 23, 2002, and September 6, 2002, Standard informed Pridgen that he was not disabled within the meaning of the Policy. Id. ¶ 5. Pridgen appealed this denial of benefits in a series of letters. Id. ¶ 7.
On December 17, 2003, Pridgen filed this suit in the 192nd Judicial District Court of Dallas County, Texas, alleging (1) breach of contract, (2) breach of the duty of good faith and fair dealing, (3) violation of the Texas Insurance Code, and (4) violation of the Texas Deceptive Trade Practices Act. See generally id. On January 20, 2004, Texas Mutual answered Pridgen's petition. On January 30, 2004, Texas Mutual removed Pridgen's suit to this court on the ground of federal question jurisdiction. See Notice of Removal at 2. Specifically, Texas Mutual maintains that Pridgen's claims arise under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., and that Pridgen's claims are completely preempted by federal law. Id.
On February 27, 2004, Pridgen moved to remand the case to state court on the ground that Texas Mutual is a sponsor of a governmental plan within the meaning of 29 U.S.C. § 1002(32) ("§ 1002(32)") and that governmental plans are specifically excluded from the otherwise comprehensive scope of ERISA. Because this plan is not subject to ERISA, he asserts, federal question jurisdiction is lacking. Plaintiff's Motion to Remand ("Motion") at 2.
Texas Mutual, on the other hand, maintains that Texas Mutual is neither a government entity nor the sponsor of a governmental plan; consequently, it concludes, Pridgen's claims are preempted by ERISA. Response at 2. Pridgen did not reply to Texas Mutual's response to Pridgen's motion to remand
On May 18, 2004, this court held a hearing on the motion to remand See generally Transcript from Pridgen v. Texas Mutual Insurance Company Hearing ("Transcript"). At that hearing, Texas Mutual was represented by private attorneys, not the Attorney General for the State of Texas. Id. at 13.
II. ANALYSIS
The Supreme Court discussed at length the effects of ERISA preemption in Metropolitan Life Insurance Company v. Taylor, 481 U.S. 58 (1987). There, the Court held that ERISA is more than a defense to claims under state law. Metropolitan, 481 U.S. at 62-63. Instead, the Court held, the plaintiff's state law causes of action are displaced and recharacterized as a claim arising under federal law. Id. at 63-64. The Court concluded that ERISA preemption serves as an exception to the "well-pleaded complaint" rule and thereby can serve as the basis of removal from state court to federal court. Id. at 63-64 ("Congress may so completely pre-empt a particular area that any civil complaint raising this select group of claims is necessarily federal in character.").
Congressional intent determines whether a federal statute preempts a state cause of action. FMC Corporation v. Holliday, 498 U.S. 52, 56 (1990). Any inquiry into such intent necessarily includes an examination of the statutory language and the structure and purpose of the statute taken in its entirety. Id. at 56-57. ERISA expressly preempts state laws "relating to" employee benefit plans. See 29 U.S.C. § 1144(a); see also McNeil v. Time Insurance Company, 205 F.3d 179, 189 (5th Cir. 2000), cert. denied, 531 U.S. 1191 (2001). It is well settled that § 1144(a) is deliberately broad and expansive in its language and its application. Manning v. Hayes, 212 F.3d 866, 870 (5th Cir. 2000), cert. denied, 532 U.S. 941 (2001); Corcoran v. United Healthcare, Inc., 965 F.2d 1321, 1328 (5th Cir.), cert. denied, 506 U.S. 1033 (1992).
The ERISA preemption clause, states, in relevant part:
Except as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title. . . .29 U.S.C. § 1144(a) (emphasis added).
State law causes of action are barred under § 1144(a) if
(1) the state law claim addresses an area of exclusive federal concern, such as the right to receive benefits under the terms of an ERISA plan; and (2) the claim directly affects the relationship between the traditional ERISA entities — the employer, the plan and its fiduciaries, and the participants and beneficiaries.Hubbard v. Blue Cross Blue Shield Association, 42 F.3d 942, 945 (5th Cir.) (citations omitted), cert. denied, 515 U.S. 1122 (1995).
Although the breadth of ERISA preemption is expansive, some exceptions apply. For example, pursuant to 29 U.S.C. § 1003(b)(1), ERISA does not preempt an employee benefit plan that is a "governmental plan" as that term is defined in § 1002(32); see also Michel v. United Healthcare of Louisiana, Inc., No. Civ. A. 03-0649, 2003 WL 1790846 at *4 (E.D. La. April 2, 2003) ("Congress deliberately excluded governmental plans from the broad sweep of ERISA preemption of state laws, which extends to state common-law causes of action as well as state regulatory laws."). Congress created the governmental plan exception to allow states to maintain control over their own retirement systems. Hightower v. Texas Hospital Association, 65 F.3d 443, 450 (5th Cir. 1995). Section 1002(32) defines a "governmental plan" as:
a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing. . . .
§ 1002(32).
Because ERISA does not define the terms "political subdivision," "agency," or "instrumentality," some courts have utilized Internal Revenue Code definitions of those terms found in Revenue Ruling 57-128, 1957-1 C.B. 311 ("Rev. Rul. 57-128"). See, e.g., Rose v. Long Island Railroad Pension Plan, 828 F.2d 910, 917-18 (2d Cir. 1987), cert. denied, 485 U.S. 936 (1988); Dickerson v. Alexander Hamilton Life Insurance Company of America, 130 F. Supp.2d 1271, 1274-75 (N.D. Ala. 2001). Rev. Rul. 57-128 states:
In cases involving the status of an organization as an instrumentality of one or more states or political subdivisions, the following factors are taken into consideration: (1) whether it is used for a governmental purpose and performs a governmental function; (2) whether performance of its function is on behalf of one or more states or political subdivisions; (3) whether there are any private interests involved, or whether the states or political subdivisions involved have the powers and interests of an owner; (4) whether control and supervision of the organization is vested in public authority or authorities; (5) if express or implied statutory or other authority is necessary for the creation and/or use of such an instrumentality, and whether such authority exists; and (6) the degree of financial autonomy and the source of its operating expenses.
Rev. Rul. 57-128.
Pridgen argues that Texas Mutual is a sponsor of a governmental plan under the language of § 1002(32) because Texas Mutual is a workers' compensation insurer in the business of paying disability benefits to beneficiaries of workers' compensation insurance policies and because Texas Mutual has been granted the rights of a state agency under the Texas Open Records Act. Motion at 2-4; see also Letter from Kathleen H. Haden, Legal Assistant, Office of the General Counsel, Texas Mutual Insurance Company, to Patrick Pridgen (Aug. 11, 2003), attached to Motion as Exhibit 4. Pridgen further argues that the fact that the enabling legislation of Texas Mutual specifically states that Texas Mutual is not a state agency is irrelevant "because the standard for determining whether a governmental plan exists necessarily does not depend upon self-serving definitions under state law," but instead depends on applicable federal law, specifically, the definition of "governmental plan" found in § 1002(32). Motion at 4-5.
The statute states that "[Texas Mutual] is not a state agency." TEX. INS. CODE ANN. Art. 5.76-3 § 21 (c) (Vernon Supp. 2004).
Texas Mutual contends that the appropriate test for determining whether or not it is the sponsor of a governmental plan is found in Revenue Ruling 89-49, 1989-1 C.B. 117 ("Rev. Rul. 89-49"), and further asserts that, under that test, Texas Mutual is not a sponsor of a governmental plan. Response at 4-5.
Texas Mutual acknowledges that the factors listed in Rev. Rul. 89-49 differ slightly from those enumerated in Rev. Rul. 57-128. Response at 4 n. 6. Nevertheless, Texas Mutual argues that under either revenue ruling, Texas Mutual is not a sponsor of a government plan. Under Rev. Rul. 57-128, Texas Mutual maintains that it (1) is not used for and does not perform a government function; (2) does not perform a function on behalf of the state; (3) involves private interests in which the state is not acting as owner; (4) has no outside control or supervision vested in governmental authorities; (5) does not need statutory authority for the reason that the company exists; and (6) is financially autonomous. See Transcript at 16-17.
Rev. Rul. 89-49 states:
A plan will not be considered a governmental plan merely because the sponsoring organization has a relationship with a governmental unit or some quasi-governmental power. One of the most important factors to be considered in determining whether an organization is an agency or instrumentality of the United States or any state or political subdivision is the degree of control that the federal or state government has over the organization's everyday operations. Other factors include: (1) whether there is specific legislation creating the organization; (2) the source of funds for the organization; (3) the manner in which the organization's trustees or operating board are selected; and (4) whether the applicable governmental unit considers the employees of the organization to be employees of the applicable governmental unit. Although all of the above factors are considered in determining whether an organization is an agency of a government, the mere satisfaction of one or all of the factors is not necessarily determinative.
Rev. Rul. 89-49.
Texas Mutual maintains that it — and not the state of Texas — "controls and conducts its everyday operations" and "enters into leases and other contracts, holds property in its own name, and otherwise conducts its everyday operations free from State oversight and control." Response at 7. In support of this assertion, Texas Mutual president and chief executive officer Russell Oliver ("Oliver") testified in his affidavit:
Texas Mutual's independence from state control is . . . demonstrated by the fact that it controls and conducts its everyday operations.
With the rights of a private person, [Texas Mutual] enters into leases and other contracts, holds property in its own name, and otherwise conducts its everyday operations free from State oversight and control.
Texas Mutual's organizational structure further supports its claim of autonomy in its everyday affairs.
[Texas Mutual]'s Board, which has a broad and general grant of authority, is empowered to function, in all respects, in the same manner as the governing body of any other mutual insurance company.
* * *
[Texas Mutual]'s officers and employees conduct its everyday operations.
Appendix to Texas Mutual Insurance Company's Response to Plaintiff's Motion to Remand, Exhibit A, Affidavit of Russell Oliver ("Oliver Affidavit") ¶¶ 42-45, 47.
As to the first enumerated factor listed in Rev. Rul. 89-49, it is clear that specific legislation created the organization. Specifically, Texas Mutual was created under Article 5.76-3 of the Texas Insurance Code ("Article 5.76-3"). Article 5.76-3 § 2(a) provides:
(a) Effective September 1, 2001, the Texas Workers' Compensation Insurance Fund shall operate as, and exercise the powers of, a domestic mutual insurance company in accordance with Chapter 15 of this code, and shall be called the Texas Mutual Insurance Company. A reference in the laws of this state to the Texas Workers' Compensation Insurance Fund means the Texas Mutual Insurance Company. The commissioner shall issue a certificate of authority to the company as provided by Chapter 15 of this code to write workers' compensation insurance, not later than September 1, 2001.
TEX. INS. CODE ANN. Art. 5.76-3 § 2(a) (Vernon Supp. 2004). Article 5.76-3 § 21(c), however, states that Texas Mutual "is not a state agency."
As to the second Rev. Rul. 89-49 factor, Texas Mutual asserts that it "generates and controls its own funds, and is financially self-sufficient and independent of the State [of Texas]." Response at 6. In support of this assertion, Texas Mutual president and chief executive officer Russell Oliver ("Oliver") testified in his affidavit:
Texas Mutual generates and controls its own funds and is financially independent from the State of Texas.
[Texas Mutual] has never received appropriations from the State [of Texas], either before or after September 1, 2001.
In 1992, when [Texas Mutual] began operations under the name "Texas Workers' Compensation Insurance Fund", the State [of Texas] satisfied the [Internal Revenue] Code Section 501(c)(27) requirement that it provide the initial opening capital of the new organization. It did so with a five million dollar loan, since repaid, and a single revenue bond program in which bonds were repaid through a maintenance tax surcharge that is no longer being assessed or collected.
The bonds were never backed by the full faith and credit of the State [of Texas].
Since the Statutory Change became effective on September 1, 2001, and [Texas Mutual] began its operations as a mutual insurance company, the Texas Public Finance Authority is no longer authorized to issue bonds on behalf of [Texas Mutual].
Except for the initial loan and the revenue bond program, [Texas Mutual] is, and has always been, financially sustained from premium revenues, together with investment income, that [Texas Mutual] receives in connection with providing workers' compensation insurance.
The State of Texas has expressly disavowed any financial obligation to [Texas Mutual], as well as any liability or responsibility to [Texas Mutual]'s creditors, policyholders and beneficiaries, even if [Texas Mutual] becomes insolvent or is placed in conservatorship or receivership.
The income that [Texas Mutual] generates from insurance premiums, and investment earnings on that income, serve as the sole source of [Texas Mutual]'s payment of workers' compensation insurance benefits and for the payment of its administrative and operating expenses, including overhead, payroll and employee benefits.
Texas Mutual employees have never participated in a State retirement system, and [Texas Mutual], not the State [of Texas], has funded all contributions to the Plan that [Texas Mutual] maintains for its employees.
[Texas Mutual]'s assets are subject to laws applicable to mutual insurance companies in general.
The State [of Texas] has expressly disavowed any claim to, and has covenanted that it will not borrow, appropriate or direct payments from [Texas Mutual]'s revenues, monies and assets.
Oliver Affidavit ¶¶ 31-41.
As to the third factor enumerated factor of Rev. Rul. 89-49, the manner in which the organization's trustees or operating board are selected, the enabling legislation provides that "[t]he company is governed by a board of directors composed of nine members," and that "[f]ive members shall be appointed by the governor with the advice and consent of the senate." TEX. INS. CODE ANN. Art. 5.76-3 § 3(a) (Vernon Supp. 2004). Accordingly, Texas Mutual's board of directors contains nine members, four of whom are elected by Texas Mutual policyholders. Oliver Affidavit ¶ 46.
Five board members constitute a quorum. TEX. INS. CODE ANN. Art. 5.76-3 § 3(m). In addition, "[t]he governor shall designate a member of the board as the chairman of the board to serve in that capacity at the pleasure of the governor." Id. § 3(k). The board "has full power, authority, and jurisdiction over the company," § 4(a), and "shall appoint a president who shall serve at the pleasure of the board." Id. § 4(d).
Finally, as to the fourth enumerated factor of Rev. Rul. 89-49, whether the applicable governmental unit considers the employees of the organization to be employees of the applicable governmental unit, Texas Mutual asserts that "neither the State [of Texas] nor [Texas Mutual] considers [Texas Mutual's] employees to be State [of Texas] employees." Response at 7; see also Transcript at 13. Oliver's affidavit confirms these facts:
Neither the State [of Texas] nor [Texas Mutual] considers [Texas Mutual]'s employees to be State [of Texas] employees.
[Texas Mutual] functions as any other private employer, and observes employment laws applicable to private employers in Texas with respect to hiring and dismissal.
Texas Mutual is not subject to legislative and regulatory requirements applicable to organizations that employ State employees.
Even before the Statutory Change became effective September 1, 2001, [Texas Mutual]'s employees were never part of the State [of Texas] employee system or the State [of Texas] employees' union.
Oliver Affidavit ¶¶ 48-51. Additionally, Texas Mutual Texas Mutual's employees do not take state holidays and do not enjoy protection afforded state employees as public employees. Transcript at 13.
Finally, Texas Mutual is not represented by the Attorney General of Texas, as is the case with state agencies, nor does Texas Mutual need permission from the Attorney General of Texas to sue in its own name. Id. at 13-14. Texas Mutual does not have the power of eminent domain nor does it enjoy sovereign immunity. Id. at 14. The fact that Texas Mutual may be subject to the Texan Open Records Act does not alone make Texas Mutual a governmental entity.
The court finds that Texas Mutual is not a sponsor of a governmental plan under § 1002(32). Thus, Texas Mutual's removal of the instant case was proper, and Pridgen's motion to remand is denied.
III. CONCLUSION
For the reasons discussed above, Pridgen's motion to remand is DENIED. ERISA's complete preemption of Pridgen's claims confers federal question jurisdiction on this court. Accordingly, Texas Mutual's removal of the instant case to this court was proper. All of Pridgen's causes of action under state law are DISMISSED with prejudice. Pridgen's petition is CONSTRUED, however, as a claim for relief under ERISA. Pridgen shall file and serve, no later than October 6, 2004, an amended complaint setting forth one or more claims for relief under ERISA. Failure to do so will result in dismissal of this case without further notice.