Opinion
Civil No. 00-1377-HA.
June 16, 2004
OPINION ORDER
INTRODUCTION
Third-party defendant, the Oregon Insurance Guarantee Association ("the OIGA") moves to dismiss plaintiffs' Supplemental Complaint and defendants' Cross-Claims pursuant to Fed.R.Civ.P. 12(b)(1) (Doc. # 172). For the reasons set forth below, the motion is denied.
The Trustees filed a "Supplemental Complaint." Unlike Eidem, et al. v. Trustees, 00-1446-HA, plaintiffs in this case never filed a Third-Party Complaint. Despite the mislabeling of pleadings and relief sought, I am aware of the arguments presented by all parties.
BACKGROUND
I. ComplaintPlaintiffs are participants in the Western States Local Union Trust Fund of the Office and Professional Employees International Union ("the Trust"). This case is one of five related class actions before this court. In this instance, the Trust retained Capital Consultants, LLC ("CCL") as an investment manager. CCL's fraudulent mismanagement of investments resulted in substantial losses to the Trust. In October 2000, plaintiffs commenced this action, alleging that each Defendant/Third-Party Plaintiff Trustee ("the Trustees") breached a fiduciary duty by failing to properly monitor CCL's investment activities. Plaintiffs' Complaint alleges four causes of action for breach of fiduciary duties under the Employer Retirement Income Security Act of 1974 ("ERISA"), as amended, 29 U.S.C. § 1001, et. seq., arising out of a series of allegedly ill-advised and improperly motivated loan transactions.
The other four class actions include: Miller v. Clinton, 00-1317-HA; Eidem, et al. v. Trustees, 00-1446-HA; Olsen v. Larsen, 01-480-HA; and McPherson v. Trustees, 00-1445-HA.
II. Settlement
In the course of the litigation the Trustees' insurer, Legion Insurance Company ("Legion"), retained defense counsel and the matter was ordered to mediation. Plaintiffs and the Trustees entered into a settlement agreement for the class actions in the amount of $478,000 (and $100,000 for reimbursement of the Trustees' defense costs), which Legion agreed to fund.
On April 1, 2002, after agreeing to fund the settlement but before doing so, Legion was placed into rehabilitation. Legion's Rehabilitator filed a petition for liquidation of Legion in August 2002. The order of liquidation and finding of insolvency was signed on July 25, 2003. Consequently, the settlement agreement has yet to be funded. III. Oregon Insurance Guaranty Association
Oregon maintains an insurance guarantee association ("the OIGA") for the purpose of expediting "covered claims" and ensuring payment to Oregon residents in the event that an insurance company become insolvent. ORS § 734.510-.710; see also Carrier v. Hicks, 316 Or. 341, 348, 851 P.2d 581, 585 (1993) (noting that the OIGA "provides protection that is similar but not identical to the protection claimants and insureds would have had if the liability insurer had not become insolvent"). Resident insured and/or injured claimants seeking timely payment can submit "covered claims" to the OIGA. ORS §§ 734.510(4)(a) 734.570(1). The OIGA obtains funds necessary to pay claims by assessing member insurers, which include all property, casualty, and workers compensation insurers licensed in Oregon. Id. at §§ 734.540 734.570(3).
The OIGA's obligations are subject to several statutory limitations, including "only that amount of each covered claim that is less than $300,000." Id. at § 734.570(1). Additionally, the OIGA does not pay until all other sources of insurance have been exhausted, and its covered claim obligation is offset by any payments received from other insurers. Id. at § 734.640. In essence, "the aim and effect of the OIGA statutes is to make the OIGA a carrier of last resort." Carrier, 316 Or. at 347, 851 P.2d at 585.
After Legion became insolvent the Trustees filed a Supplemental Complaint against the OIGA (Doc. # 168). This Supplemental Complaint makes four claims for: (1) declaratory relief; (2) recovery of damages for alleged breach of statutory duty; (3) recovery of damages for alleged breach of contract; and (4) attorney fees.
DISCUSSION
The OIGA argues that this court lacks supplemental jurisdiction over any third-party claims against the OIGA, or alternatively should decline to exercise supplemental jurisdiction, because these claims: (1) involve the allocation of state public funds; (2) are factually unrelated to the claims in the underlying ERISA litigation; and (3) are being asserted against a third party that was not involved in the underlying litigation or its settlement. Plaintiffs and the Trustees counter that this court can and should exercise supplemental jurisdiction over the state claims asserted against the OIGA because the ancillary claims to enforce the settlement agreement are part of the same case or controversy and a finding of supplemental jurisdiction will most efficiently enforce the ERISA-based settlement agreements.
For the reasons set forth below, I conclude that supplemental jurisdiction exists pursuant to 28 U.S.C. § 1367(a), and further conclude that there is no reason to refuse to exercise supplemental jurisdiction over the state claims asserted against the OIGA pursuant to 28 U.S.C. § 1367(c).
I. Supplemental Jurisdiction A. Legal Standards
The burden of proof on a motion to dismiss under Fed.R.Civ.P. 12(b)(1) rests with the party asserting jurisdiction. See Sopcak v. N. Mountain Helicopter Serv., 52 F.3d 817, 818 (9th Cir. 1995) (citation omitted). The supplemental jurisdiction statute provides:
[I]n any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution.28 U.S.C. § 1367(a).
"The statute's plain language makes clear that supplemental jurisdiction may only be invoked when the district court has a hook of original jurisdiction on which to hang it." Herman Family Revocable Trust v. Teddy Bear, 254 F.3d 802, 805 (9th Cir. 2001) (citation omitted).
Pendent party jurisdiction is constitutional so long as the pendent state law claim is part of the same "case or controversy" as the federal claim. See Mendoza v. Zirkle Fruit Co., 301 F.3d 1163, 1174 (9th Cir. 2002). Non-federal claims are part of the same "case" as federal claims when they "derive from a common nucleus of operative fact and are such that a plaintiff would ordinarily be expected to try them in one judicial proceeding." Finley v. United States, 490 U.S. 545, 549 (1989), quoting United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725 (1966) (internal quotations omitted).
B. Analysis
The state law claims asserted against the OIGA arise from plaintiffs' underlying federal ERISA claims asserted against the Trustees and the associated settlement, which a now-defunct Legion had agreed to fund. The Third Party Complaint (Corrected) and Supplemental Complaint allege claims against the OIGA which originated from the ERISA liability allegedly owed to Oregon residents.
In Galt G/S v. Hapag-Lloyd AG, 60 F.3d 1370 (9th Cir. 1995), an insurer of an importer brought an admiralty action seeking subrogation against a carrier that allegedly mishandled a shipment of ham to a retailer. The carrier filed a third-party complaint against a retailer for indemnification. Id. at 1372-73. In a sua sponte discussion of whether admiralty or diversity jurisdiction provided the court with an independent basis for federal subject matter jurisdiction, the Ninth Circuit held that admiralty jurisdiction was inapplicable because the injury to the damaged goods did not occur on navigable waters or in related traditional maritime activities. Id. at 1373.
Similar to the third-party defendant in Galt G/S, the OIGA "is a pendent party because it was not already a party to the lawsuit when [the Trustees and plaintiffs] moved to implead it and because the district court ha[s] no independent basis for federal jurisdiction over it." Id. at 1374. To exercise "jurisdiction over the pendent and ancillary actions," plaintiffs and/or the Trustees need "to establish a constitutionally required minimal nexus to the principal action and find explicit authorization in a jurisdiction-conferring statute." Id., citing Finley v. United States, 490 U.S. 545 (1989). In other words, the state claims against the OIGA must be "part of the same constitutional `case'" as plaintiffs' ERISA claims. See Galt/GS, 60 F.3d at 1374.
The core issue in this case has transmogrified from a dispute over liability under ERISA into a dispute over the enforcement of an agreed settlement. Plaintiffs and the Trustees assert that all the state claims: (1) are based on related facts that occurred after the commencement of this action without any supervening event; and (2) sufficiently relate to plaintiffs' motion to enforce the Class Action Settlement against the Trustees, over which the court plainly has supplemental jurisdiction. Indeed, the scope of the OIGA's obligation is an insurance coverage matter originating from the enforcement of the settlement agreement seeking payment of obligations due to alleged ERISA violations. Additionally, plaintiffs' Class Action Settlement Agreement with the Trustees is expressly conditioned on the court's approval.
Unlike the disappearance of the underlying admiralty claim in Galt/GS, the underlying ERISA claims in this instance are still closely connected to the issue of who will ultimately fund the Trust. Therefore, the non-federal claims asserted against the OIGA sufficiently derive from a common nucleus of operative fact as required pursuant to 28 U.S.C. § 1367(a).
III. Discretion
Once it is determined that supplemental jurisdiction exists under 28 U.S.C. § 1367(a), the court may nevertheless decline to exercise supplemental jurisdiction over a claim if:
(1) the claim raises a novel or complex issue of State law,
(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction,
(3) the district court has dismissed all claims over which it has original jurisdiction, or
(4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.28 U.S.C. § 1367(c).
The OIGA asserts that if supplemental jurisdiction exists, this court should nevertheless decline to exercise jurisdiction over the claims asserted against it because: (1) these claims involve complex issues of state statutory interpretation that no Oregon appellate court has addressed; and (2) dismissal of the OIGA claims are necessary in the interest of comity and federalism and will not cause unreasonable delay, unnecessary expense, prejudice, or inconvenience. Plaintiffs and the Trustees respond that this court should exercise jurisdiction and enforce the court-approved class action settlement agreement because any issues of state law originate from a fundamentally federal concern.
The OIGA statutes are not overly complex and are adapted from a model act created by the National Association of Insurance Commissioners. Should difficulties arise, I can turn to case law interpreting similar insurance guaranty association statutes for guidance. See e.g., H.K. Porter Co., Inc. v. Pennsylvania IGA, 75 F.3d 137 (3rd Cir. 1996); Columbia Grain, Inc. v. Oregon IGA, 22 F.3d 928 (9th Cir. 1994); Temple Drilling Co. v. Louisiana IGA, 946 F.2d 390 (5th Cir. 1991); Rhulen Agency, Inc. v. Alabama IGA, 896 F.2d 674 (2nd Cir. 1990).
Importantly, the original ERISA claims are related to the claims asserted against the OIGA. Moreover, the claims asserted against the OIGA do not substantially predominate the ERISA-based claims and the OIGA has suggested no exceptional circumstances militating in favor of declining jurisdiction.
Despite the OIGA's argument to the contrary, transferring this portion of the litigation to state court would cause delay, unnecessary expense, and inconvenience. The ability to fund the Trust dwindles as legal fees continue to mount. In the interest of judicial economy, I see no reason to decline exercising supplemental jurisdiction over the OIGA claims.
CONCLUSION
Based on the foregoing, the Third-Party Defendant OIGA's Motion to Dismiss Plaintiffs' Second Amended Complaint and Defendant Trustees' Cross-Claims (Doc. # 172) is DENIED.
IT IS SO ORDERED.