Opinion
1:03CV65-C
September 3, 2003
MEMORANDUM AND RECOMMENDATION
THIS MATTER is before the Court on the motion of Defendant Hartford Life Accident Insurance Company to dismiss Plaintiffs Complaint for failure to state a claim upon which relief can be granted under Rule 12(b)(6). Upon consideration of the pleadings, the parties' briefs, and the applicable law, the undersigned will respectfully recommend that the Court deny Defendant's motion except to the extent it seeks to strike Plaintiffs demand for punitive damages and a trial by jury.
PROCEDURAL AND FACTUAL BACKGROUND
Plaintiff filed this action on or about February 19, 2003 in the District Court of Haywood County, North Carolina. In her Complaint, Plaintiff alleged that her deceased husband, Mr. Devery Thomas, had a life insurance policy with Defendant in which Plaintiff was named as a beneficiary who would receive fifty-percent of the life insurance proceeds upon his death. (Compl. ¶ 4). Plaintiff alleged that her husband died on April 21, 2001 and that after making two disbursements of approximately $105,400.00 each, Defendant placed a hold on an account into which Plaintiff had deposited at least a portion of the money and which was being managed by Defendant. (Compl. ¶¶ 4-10). Plaintiff alleged that Defendant ultimately removed the remaining balance of $101,100 from that account and has refused to return the money. (Compl. ¶¶ 10, 11). Plaintiff asserted causes of action for unfair and deceptive trade practices under the North Carolina General Statutes, see N.C. Gen. Stat. § 75-1.1 et seq., and for fraud under North Carolina common law, both based on Defendant's alleged conduct in removing the funds from the account and refusing to return the money. (Compl. ¶¶ 12, 13). Plaintiff sought, in the Complaint, treble damages, punitive damages, and a trial by jury.
On March 21, 2003, Defendant removed the action to this Court on the basis of federal question jurisdiction, asserting that Plaintiffs claims were governed by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., and on the basis of diversity jurisdiction, asserting that there was complete diversity of citizenship and that the amount in controversy exceeded $75,000. Defendant subsequently moved to dismiss the action on the basis that ERISA preempts the state law claims asserted therein. Plaintiff has failed to respond to Defendant's motion.
MOTION TO DISMISS STANDARD
A complaint should not be dismissed for failure to state a claim upon which relief can be granted unless "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spaulding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232 (1984); see also Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102 (1957). In evaluating a motion to dismiss, "a court must accept the factual allegations of the complaint as true." GE Investment Private Placement Partners II v. Parker, 247 F.3d 543, 548 (4th Cir. 2001). Notwithstanding this exacting standard, dismissals should be granted when warranted. As recognized by the Supreme Court in Neitzke v. Williams, 490 U.S. 319, 109 So. Ct. 1827 (1989), the Rule 12(b)(6) procedure for early dismissal "streamlines litigation by dispensing with needless discovery and fact finding." Id., 490 U.S. at 326-27, 109 S.Ct. at 1832. Accordingly, "[n]othing in Rule 12(b)(6) confines its sweep to claims of law which are obviously insupportable." Id., 490 U.S. at 327, 109 S.Ct. at 1832.
DISCUSSION
I. ERISA PreemptionAs set forth above, Defendant argues that Plaintiffs Complaint is due to be dismissed for failure to state a claim upon which relief can be granted because the two causes of action asserted therein relate to an employee benefits plan under ERISA and are, therefore, preempted by ERISA. As set forth in detail below, the undersigned agrees with Defendant that Plaintiffs claims are preempted by ERISA. The fact of preemption, however, does not, a fortiori, require the dismissal of Plaintiff s claims, and under the doctrine of complete preemption, the undersigned concludes that Defendant's motion to dismiss based on the fact that Plaintiff asserts state law claims should be denied.
Though neither party raised the issue, in order to evaluate Defendant's motion, a brief explanation of the doctrines of conflict and complete preemption is necessary. As explained by the Fourth Circuit in several recent cases, under conflict, or ordinary, preemption rules, "state laws that conflict with federal laws are preempted, and preemption is asserted as `a federal defense to the plaintiffs suit.'" Darcangelo v. Verizon Commun., Inc. 292 F.3d 181, 186-87 (4th Cir. 2002) (quoting Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 1546 (1987)); see also Sonoco Prods. Co. v. Physicians Health Plan, Inc., 338 F.3d 366, 370-71 (4th Cir. 2003); King v. Marriott Int'I, Inc., 337 F.3d 421, 425 (4th Cir. 2003). In the context of ERISA, § 514 of ERISA provides generally that the provisions of ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan. . . ." 29 U.S.C. § 1144(a). As explained by the court in Darcangelo, this provision "expressly states the scope of ordinary conflict preemption under ERISA." Darcangelo, 292 F.3d at 187. When presented with a state law claim that arguably implicates ERISA, then, a court must determine whether the claim is preempted under the conflict preemption provision set forth in § 514. See id.
Even if a claim is preempted under a conflict preemption provision, however, it should not be dismissed on that basis if it is completely preempted under the complete preemption doctrine.
As explained by Judge Luttig in King, under the doctrine of complete, as opposed to conflict, preemption, "federal law so completely sweeps away state law that any action purportedly brought under state law is transformed into a federal action that can be brought originally in, or removed to, federal court." King, 337 F.3d at 425. Thus, "the touchstone of complete preemption is `whether Congress intended the federal cause of action' to be `the exclusive cause of action' for the type of claim brought by a plaintiff." Id. (quoting Beneficial Nat'l Bank v. Anderson, ___ U.S. ___, 123 S.Ct. 2058, 2060 (2003)). Although labeled a "preemption" doctrine, it is misleading to think of the state law claim as having been "preempted"; rather, it is more appropriate to state that "the plaintiff simply has brought a mislabeled federal claim, which may be asserted under some federal statute." King, 337 F.3d at 425. In such cases, the appropriate remedy to this "mislabeling" is the conversion of the asserted state law claim into the appropriate federal law claim, not the dismissal of the claim. See Darcangelo, 292 F.3d at 195 ("[W]hen a claim under state law is completely preempted . . ., the federal court should not dismiss the claim as preempted, but should treat it as a federal claim. . . ."); King, 337 F.3d at 425 ("[A] vital feature of complete preemption is the existence of a federal cause of action that replaces the preempted state cause of action.").
In the context of ERISA, the Supreme Court has held that § 502 of ERISA, 29 U.S.C. § 1132, "completely preempts state law claims that come within its scope and converts these state claims into federal claims under § 502." Darcangelo, 292 F.3d at 187 (citing Taylor, 481 U.S. at 65-66, 107 S.Ct. at 1547). Section 502 of ERISA provides, in pertinent part, that a civil action may be brought "by a participant or beneficiary . . . to recover benefits due to [her] under the terms of [her] plan, to enforce [her] rights under the terms of the plan, or to clarify [her] rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B). The Fourth Circuit has identified three requirements for determining that a state law claim comes within the scope of § 502 such that it is completely preempted: (1) the plaintiff must have standing under § 502(a) to pursue her claim; (2) her claim must fall within the scope of an ERISA provision that it can enforce through § 502(a); and (3) resolution of the claim must require an interpretation of an ERISA-governed employee benefit plan. See Sonoco Prods. Co., 338 F.3d at 372 (citing Joss v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1487 (7th Cir. 1996)).
In this case, Plaintiff alleges that she was a named beneficiary to a life insurance policy issued by Defendant. "Employee benefit plan" is defined in § 3(3) of ERISA to include "an employee welfare benefit plan," and § 3(1) defines "employee welfare benefit plan" to include "any plan, fund, or program . . . maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund or program was established or is maintained for the purpose of providing for its participants or their beneficiaries . . . benefits in the event of death. . . ." See 29 U.S.C. § 1002(1), (3). Additionally, ERISA § 4(a) provides that an employee benefit plan is subject to the provisions of ERISA if "it is established or maintained by an employer engaged in commerce or in any industry or activity affecting commerce." Id. § 1003(a). Here, although it was not attached to the Complaint, Defendant asserts, and Plaintiff does not contest, that the life insurance policy issued by Defendant and of which Plaintiff was a beneficiary was a policy issued to Volvo Construction Equipment, N.A., Inc. ("Volvo") and was part of an employee benefit plan established for Volvo's employees. (Exh. A attached to Def. Br. Supp. Mot. to Dismiss). As the plan was maintained by an employer for the benefit of its employees and provided benefits in the event of the death of an employee, it constitutes an "employee welfare benefit plan" under § 3(1). Additionally, because Plaintiff alleges that she was the designated beneficiary under that plan, she constitutes a "beneficiary" for purposes of ERISA. See id. § 1002(8) (defining "beneficiary" as "a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder"). Plaintiff does, therefore, have standing under § 502(a) to pursue her claim, as required for complete preemption.
While a court may not normally consider matters outside the pleadings in ruling on a Rule 12(b)(6) motion to dismiss, a court may consider a document that is "integral to and explicitly relied on in the complaint" where the plaintiff does not challenge its authenticity. Phillips v. LCI Int'l, Inc., 190 F.3d 609, 618 (4th Cir. 1999). Here, the applicable insurance policy is explicitly referred to in the body of the Complaint, and Plaintiff has not challenged the authenticity of the policy submitted by Defendant. The undersigned will, therefore, consider the document in recommending a decision on Defendant's motion. See Darcangelo, 292 F.3d at 195 n. 5 (approving consideration of ERISA plan on motion to dismiss where plan was referred to in Complaint but not attached).
In terms of whether Plaintiffs claim falls within the scope of an ERISA provision that she can enforce pursuant to § 502(a), her claim is for the return of funds originally deposited by Defendant in her account and funds to which, Plaintiff alleges, she is entitled as a beneficiary of the plan at issue in this case. Based on her allegations alone, it appears that her state law claims may appropriately be characterized as claims to recover benefits allegedly due to her under the terms of the plan and to enforce her rights under the terms of the plan, claims which fall easily within the provisions of § 502(a).
Finally, with respect to the third requirement articulated in Sonoco — that resolution of the claims require an interpretation of the plan — at least at this stage of the proceedings, it appears that resolution of Plaintiff s claim to entitlement to the disputed funds will turn on whether Defendant correctly interpreted the Plan not to permit the distribution of those funds. In recommending that the Court hold that Plaintiffs state law claims are completely preempted by § 502 of ERISA, the undersigned notes that in removing this action from the Superior Court of Haywood County, Defendant asserted that ERISA governed Plaintiffs claims "[u]nder the complete preemption doctrine." (Notice of Removal ¶ 5). Therefore, while Defendant did not acknowledge the potential applicability of the complete preemption doctrine in its brief in support of its motion to dismiss, it recognized its applicability for purposes of establishing this Court's jurisdiction. Because Plaintiffs state law claims are completely preempted by § 502 of ERISA, the authority cited above establishes that they should be considered mislabeled and converted into a federal claim pursuant to § 502. Cf. Lippard v. Unumprovident Corp., 261 F. Supp.2d 368, 377 (M.D.N.C. 2003) (holding plaintiffs unfair and deceptive trade practices claim under North Carolina General Statutes to be completely preempted by ERISA § 502). Accordingly, the undersigned will recommend that Defendant's motion to dismiss these claims be denied.
The undersigned also notes that while Defendant relied in part on the complete preemption of Plaintiff s claims to support removal of her action, original jurisdiction is also appropriate in this Court on the basis of this Court's diversity jurisdiction.
The undersigned notes that Defendant moves to dismiss this action based only on its argument that Plaintiffs claims are preempted by ERISA. If the Court adopts the undersigned's recommendation and converts Plaintiffs claims into a claim under § 502, there may be other bases for dismissal of the action, and this Memorandum and Recommendation is not intended to resolve whether such grounds exist, whether they may properly be asserted, or whether, if they do exist, they have merit.
While the undersigned will recommend that Defendant's motion to dismiss be denied, in the event that the Court disagrees and determines that Plaintiffs state law claims are not completely preempted, the Court will have to address the issue of conflict preemption. As set forth above, ERISA's conflict preemption provision, § 514, provides generally that the provisions of ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan. . . ." 29 U.S.C. § 1144(a). In determining whether a state law claim "relates to" an employee benefit plan such that it is preempted by ERISA, the Fourth Circuit has held that "[a] state-law claim `relates to' an ERISA plan . . . `if it has a connection or reference to such a plan.'" Stiltner v. Beretta U.S.A. Corp., 74 F.3d 1473, 1480 (4th Cir. 1996) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97, 103 S.Ct. 2890, 2900 (1983)). Stated another way, "[i]f a state law, or cause of action, would affect relations between plan entities or impact the administration of a plan, it is preempted." Strategic Outsourcing, Inc. v. Commerce Benefits Group Agency, Inc., 54 F. Supp.2d 566, 571 (W.D.N.C. 1999). Thus, "state common-law tort and contract actions which are `based on alleged improper processing of a claim for benefits under an employee benefit plan' are preempted by ERISA." Id. (quoting Pilot Life Ins. v. Dedeaux, 481 U.S. 41, 48, 107 S.Ct. 1549, 1553 (1987)); see also Darcangelo, 292 F.3d at 188 (state law claims are "related to" ERISA where allegedly violative conduct occurred "in the course of processing a benefits claim or in the course of performing any of [the fiduciary's] administrative duties under the plan" (emphasis in original)); Powell v. Chesapeake Potomac Tel. Co. of Va., 780 F.2d 419, 421-22 (4th Cir. 1985) (state law claims for intentional infliction of emotional distress, breach of implied covenant of good faith and fair dealing, breach of contract, and unfair and deceptive trade practices under Virginia Code preempted by ERISA). It also bears mentioning that in discussing ERISA's preemption clause, the Fourth Circuit has recognized that "[t]his clause has been broadly interpreted by the courts to carry out Congress' intent to displace any state law efforts to regulate ERISA matters." Tri-State Machine, Inc. v. Nationwide Life Ins. Co., 33 F.3d 309, 312 (4th Cir. 1994).
Here, the action is one for the return of funds disbursed and then re-captured by Defendant in processing Plaintiffs claim for benefits under the plan. Accordingly, Plaintiffs claims "relate to" an ERISA plan, and Plaintiffs state law claims for fraud and unfair and deceptive trade practices are, therefore, preempted by ERISA § 514. If the Court determines, therefore, that Plaintiffs state law claims are not completely preempted such that they should be considered a federal claim under § 502, the undersigned respectfully recommends that the Court hold that her claims are preempted under the conflict preemption provision set forth in § 514 and the Complaint be dismissed.
II. Motion to Strike
In addition to moving to dismiss Plaintiffs Complaint because her claims are preempted by ERISA, Defendant also moves to strike Plaintiffs request for punitive damages and a jury trial. As Defendant correctly notes, punitive damages are not available under ERISA. See Darcangelo, 292 F.3d at 195 ("§ 502 limits a plaintiff to equitable relief, so [plaintiff] is not entitled to compensatory and punitive damages on the contract claim"). Additionally, while there is some dispute about this issue, most courts agree that a jury trial is not available in ERISA actions seeking the recovery of benefits. See, e.g., Biggers v. Wittek Indus., Inc., 4 F.3d 291, 297-98 (4th Cir. 1993); DePace v. Matsushita Elec. Corp. of Am., 257 F. Supp.2d 543, 573-74 (E.D.N.Y. 2003); Ellis v. Metropolitan Life Ins. Co., 919 F. Supp. 936, 937-38 (E.D. Va. 1996). Therefore, if the Court adopts the undersigned's recommendation that Defendant's motion to dismiss the action be denied, the undersigned recommends that Defendant's motion to dismiss be granted to the extent that it seeks to strike Plaintiffs request for punitive damages and her demand for a jury trial.
ORDER
For the foregoing reasons, IT IS RESPECTFULLY RECOMMENDED that Defendant's Motion to Dismiss be DENIED to the extent it seeks the dismissal of this action and GRANTED to the extent it seeks to have Plaintiffs requests for punitive damages and a jury trial stricken. If the Court determines that Plaintiffs claims are not completely preempted by ERISA, the undersigned RESPECTFULLY RECOMMENDS that Defendant's Motion to Dismiss be GRANTED and judgment entered in favor of Defendant.
The parties are hereby advised that, pursuant to 28, United States Code, Section 636(b)(1)(C), written objections to the findings of fact, conclusions of law, and recommendation contained herein must be filed within ten (10) days of service of same. Failure to file objections to this Memorandum and Recommendation with the district court will preclude the parties from raising such objections on appeal. Thomas v. Am, 474 U.S. 140, 152, 106 S.Ct. 466, 473 (1985); United States v. Schronce, 727 F.2d 91, 93-94 (4th Cir. 1984).