Opinion
01 Civ. 11263 (MBM)
December 18, 2002
NINA H. KAZAZIAN, ESQ., Bartlett Bartlett, New York, NY, for Plaintiff.
PENNY ANN LIEBERMAN, ESQ., ROBERT R. PERRY, ESQ., JONATHAN M. KOZAK, ESQ., Jackson Lewis Schnitzler Krupman White Plains, New York, for Defendants.
OPINION AND ORDER
Plaintiff Ioana Baraschi brings this action against defendants Silverwear, Inc. and Powder Blu CDC ("Silverwear"). Baraschi sues to recover medical benefits under the Employee Income Security Act of 1974 ("ERISA"), wages and other compensation due to her under the terms of her employment, and expenses incurred during the course of her employment. Defendants move to dismiss Baraschi's ERISA claims for failure to state a claim and ask the court to decline to exercise supplemental jurisdiction over Baraschi's state law claims. In the alternative, defendants move to dismiss Baraschi's claim for wages and benefits under New York's Labor Law insofar as Baraschi, sues for reimbursement of Social Security, and Medicaid taxes. For the reasons set forth below, the motion to dismiss the ERISA claims is denied, and the court retains jurisdiction over Baraschi's state law claims. However, the motion to dismiss Baraschi's state law claim for reimbursement of Social Security and Medicaid taxes is granted and Baraschi's request for costs and attorneys' fees is denied.
I.
The facts alleged in plaintiff's complaint, accepted as true for the purposes of this motion, are as follows: Ioana Baraschi, a resident of New York City, was an employee of defendant Silverwear, a corporation doing business in New York City, from December 1996 to 1999, and of defendant Powder Blu CDC, a subsidiary of Silverwear, from 1999 until November 29, 2000. (Compl. ¶¶ 6-11) According to her employment agreement, attached to the complaint as Exhibit A, Silverwear agreed to pay Baraschi a salary of $135,000 per year, plus additional compensation in the form of an incentive bonus of "1/2 per million" for increased volume generated from new ventures' income. In addition, Silverwear agreed to pay Baraschi for three weeks' annual vacation, plus half-days off on Fridays during the summer. In the event of termination after six months of employment, the Agreement stated that Baraschi would be entitled to severance in the amount equal to three months' salary. (Id. ¶ 12)
During Baraschi's tenure, Silverwear maintained one or more "employee benefit plans," which provided medical and other benefits to Silverwear employees ("the Plans"). (Id. ¶ 14) Moreover, Silverwear employed 20 or more people for each working day in each of 20 or more calendar weeks in the current or preceding calendar year. (Id. ¶ 15) Baraschi requested that she and her family be enrolled in the Plans, but Silverwear denied her request and did not provide her with information that would have allowed her to appeal the decision. (Id. ¶¶ 18, 20) As a result, Baraschi had to pay for individual health insurance for herself and her family. (Id. ¶ 21)
Further, defendants did not make employer tax payments under Social Security and Medicaid. (Id. ¶ 22) As a result, Baraschi was required to deduct the requisite amounts from her wages and remit them herself. (Id. ¶ 23) Upon termination of her employment, defendants refused also to pay Baraschi holiday and sick benefits, as well a prorated share of her annual bonus and severance pay. (Id. ¶¶ 24-28) Finally, during her employment by Silverwear, Baraschi advanced funds to Silverwear for the purchase of equipment and also loaned money to Silverwear. (Id. ¶¶ 30-31) Silverwear has refused to repay Baraschi. (Id.)
Baraschi filed her complaint in this action on December 7, 2001. Baraschi makes six claims for relief. First, Baraschi claims that she was entitled to medical benefits for herself and her daughter under Silverwear's employee benefit plans, and that Silverwear denied those benefits in violation of ERISA. (Id. ¶¶ 32-37) Second, under the heading of "COBRA Benefits," Baraschi claims that Silverwear, in violation of ERISA, failed to provide her with notice of her rights to continue receiving medical benefits under Silverwear's employee benefit plans, and also failed to provide Baraschi with the continuation coverage benefits themselves. (Id. ¶¶ 38-41) Third, Baraschi claims that Silverwear violated New York's Labor Law by refusing to pay Baraschi her annual bonus as well as appropriate Social Security and Medicaid tax payments, holiday and sick pay benefits, and severance. (Id. ¶¶ 39-48) Fourth, Baraschi claims that Silverwear breached her employment contract by failing to pay Baraschi her severance and expenses after her employment was terminated. (Id. ¶¶ 49-53) Fifth, Baraschi claims that Silverwear was unjustly enriched at Baraschi's expense because it has retained equipment purchased with loans from Baraschi. (Id. ¶¶ 54-58) Sixth, Baraschi claims that defendants converted to their own use the equipment paid for by Baraschi as well as money expended and loaned by Baraschi during the term of her employment. (Id. ¶¶ 59-62) The court has jurisdiction over the two federal claims — Claims 1 and 2 — under 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e). Baraschi asks the court to assert supplemental jurisdiction over the remaining claims under 28 U.S.C. § 1367 (2000).
Defendants now move, pursuant to Fed.R.Civ.P. 12(b)(6), to dismiss Baraschi's ERISA claims for failure to state a claim, and ask the court not to exercise supplemental jurisdiction over Baraschi's state law claims once the federal claims are dismissed. In the alternative, defendants move to dismiss Baraschi's third claim, which is based on New York law, to the extent that Baraschi seeks reimbursement of Social Security and Medicaid taxes.
II.
Although a court generally may not look beyond the pleadings when reviewing a motion to dismiss, Fed.R.Civ.P. 10(c) authorizes the court to consider any exhibits mentioned in and attached to the pleadings. See Fed.R.Civ.P. 10(c) ("A copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes."); Goldman v. Belden, 754 F.2d 1059, 1065-66 (2d Cir. 1985). Here, Baraschi has attached a copy of her employment contract with defendants to her complaint. (See Compl., Ex. A) That contract will be treated as part of Baraschi's pleadings for the purposes of this motion.
To the extent that a plaintiff's own exhibit contradicts the numbered allegations in her complaint, the language of the exhibit controls.Sazerac Co., Inc. v. Falk 861 F. Supp. 253, 257 (S.D.N.Y. 1994) ("[I]f the allegations of a complaint are contradicted by documents made a part thereof, the document controls and the court need not accept as true the allegations of the complaint."). In her complaint, Baraschi alleges, in conclusory fashion, that she was a "participant" in Silverwear's employee benefits plans as the term is defined by ERISA. (Compl. ¶ 16) However, the Agreement attached to the complaint contains provisions that are, according to Silverwear, inconsistent with the allegation that Baraschi was a "participant" in the Plans. First, the Agreement provides that Baraschi's annual compensation of $135,000 will be payable "on Form 1099," a form used to report income other than wages. Second, there is a line crossing out the term in the Agreement providing for "medical insurance for my daughter and I." In determining whether, as Silverwear claims, Baraschi was not, as a matter of law, a "participant" in Silverwear's Plans, these terms of the Agreement will be taken into account.
III.
ERISA states that "[a] civil action may be brought by a participant or beneficiary . . . to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of his plan, or to clarify his future rights under the terms of his plan." 29 U.S.C. § 1132(a)(1)(B) (2000). Baraschi states that she was a "participant" in Silverwear's employee benefit plans. (Compl. ¶ 16) A "participant" is defined by the statute as "any employee or former employee of an employer . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan." 29 U.S.C. § 1002 (7) (2000) Thus, as one court summed up ERISA's standing scheme, "ERISA imposes two requirements for participant status: (1) the person must be an employee, and (2) the person must, according to the language of the plan itself, be eligible to receive benefits." Montesanto v. Xerox Corp. Ret. Income Guarantee Plan, 117 F. Supp.2d 147, 160 (D. Conn. 2000), vacated in part on other grounds, 256 F.3d 86 (2d Cir. 2001).
Silverwear contends that, as a matter of law, Baraschi meets neither of these two requirements. Thus, according to Silverwear, both Baraschi's claim that she was entitled to ERISA benefits while she worked at Silverwear and her claim that she was entitled to COBRA benefits after her employment was terminated must be dismissed. Because I find that, notwithstanding the terms of the Agreement, Baraschi has adequately alleged that she was a "participant" in Silverwear's Plans, the motion to dismiss Baraschi's federal claims is denied.
Silverwear argues first that, in light of the terms of the Agreement accepted by Baraschi, Baraschi cannot be deemed an "employee" under ERISA. I disagree.
In Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318 (1992), the Supreme Court held that where there is ambiguity about whether someone seeking benefits is an "employee" under ERISA, the common law definition of the term applies. Darden described the inquiry into whether a plaintiff is an employee under ERISA as follows:
In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party's right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party's discretion over when and how long to work; the method of payment; the hired party's role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.Darden, 503 U.S. at 324 (quoting Community for Creative Non-Violence v. Reid, 490 U.S. 730, 751-52 (1989)). Here, there are strong indications in the employment contract that Baraschi was not a common-law employee of Silverwear's. Baraschi requested that she be paid on Form 1099 and established limits on the timing and content of her work. See Darden, 503 U.S. at 324 (stating that "the tax treatment of the hired party" is a relevant factor in classifying workers as employees or independent contractors); Eisenberg v. Advance Relocation Storage, Inc., 237 F.3d 111, 114 (2d Cir. 2000) (noting that, in determining whether someone is an employee at common law, "[t]he greatest emphasis should be placed . . . on the extent to which the hiring party controls the manner and means by which the worker completes his or her assigned task"); see also Montesanto, 117 F. Supp.2d at 159 (finding that the language of employment agreements should be considered in classifying workers).
However, at the pleading stage, disposing of Baraschi's ERISA claims on the ground that she is not a common-law employee would be premature. The Second Circuit has warned that the parties' own classification of an employee or contractor's status is not dispositive. See Sharkey v. Ultramar, 70 F.3d 226, 232 (2d Cir. 1995) ("[T]he employment status of an individual for purposes of ERISA is not determined solely by the label used in the contract between the parties."). Notwithstanding the terms of the contract that she has attached to her complaint, Baraschi is entitled to prove that, based on the array of factors listed in Darden, she was a common-law employee of Silverwear's.
Silverwear argues next that, because ERISA does not require coverage of all classes of employees, and Baraschi contractually waived any coverage to which she would be entitled, Baraschi's ERISA claims must be dismissed. Once again, I disagree.
As noted above, ERISA grants a private right of action to "participants" in employee benefit plans and defines a "participant" as "any employee or former employee of an employer . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan." 29 U.S.C. § 1002 (7) (2000). Thus, to sustain its claim that Baraschi waived her status as a "participant," Silverwear must show that Baraschi renounced her right to receive a benefit "of any type." Defendants do not make a complete argument to that effect; rather, they state, without elaboration, that the employment contract "specifically excluded [Baraschi] from coverage under the alleged Plans." (Mem. of Law in Supp. of Defs.' Mot. to Dismiss, at 6)
An employee may contractually waive her right to ERISA benefits. See Laniok, 935 F.2d at 1364-65 ("Although ERISA is a comprehensive and reticulated statute, we have no provision, and the parties have identified none, generally prohibiting an individual from waiving his right to participate in a pension plan." (citations omitted)); see also Capital Cities/ABC Inc. v. Ratcliff, 141 F.3d 1405, 1410-11 (10th Cir. 1998); Vizcaino v. Microsoft Corp., 120 F.3d 1006, 1012 (9th Cir. 1997);Smart v. Gillette, 70 F.3d 173, 181 (1st Cir. 1995); Leavitt v. Northwestern Bell, 921 F.2d 160, 163 (8th Cir. 1990); United Mine Workers v. New River, 842 F.2d 734, 737 (4th Cir. 1988); Montesanto, 117 F. Supp.2d at 160. The issue is whether Baraschi, simply by requesting that she be paid on Form 1099 and allowing Silverwear to cross out the medical insurance term in her employment contract, actually did waive that right.
The Second Circuit's decision in Sharkey, cited above for the proposition that the employment status of an individual is not determined solely by the parties, is pertinent here as well. Sharkey involved a long-time employee who, upon his retirement, entered into a part-time consulting arrangement with his former employer Ultramar Energy.Sharkey, 70 F.3d at 227-28. However, the part-time position changed almost immediately into a full-time position identical to the plaintiff's prior position at Ultramar, and the chairman of Ultramar subsequently agreed to reinstate Sharkey on the payroll and give him full credit for the period between his retirement and his reinstatement as a full-time employee. Id. at 228. Soon thereafter, Ultramar was acquired in a hostile takeover, and the acquiror, after terminating Sharkey's employment, refused to take into account his time as a consultant as well as his time as an employee before his retirement in calculating severance payments. Sharkey sued. Id.
The acquiror refused also to grant pension service credit to Sharkey for the period of his consultancy, but Sharkey's pension claim is not relevant here.
The district court in Sharkey granted summary judgment to Ultramar on the severance claim based on consulting agreements between the parties in which Sharkey had purportedly waived his right to receive benefits from Ultramar. In reversing the District Court's decision, the Second Circuit noted that the benefits Sharkey allegedly waived were not yet in place at the time of the supposed waiver, that Sharkey had submitted evidence that he did not intend to waive his severance rights, and that, according to Sharkey, the release he signed did not clearly and unambiguously disclaim benefits under benefit plans adopted after the waiver. Id. at 230-31. Emphasizing that the validity of a waiver of benefits under ERISA is subject to closer scrutiny than other waivers, see Laniok v. Advisory Comm. of Brainerd Mfg. Co. Pension Plan, 935 F.2d 1360, 1367 (2d Cir. 1991), and that a waiver of ERISA benefits must be "knowing and voluntary," id., the Court concluded that Sharkey had raised an issue of fact regarding the validity of his waiver. Sharkey, 70 F.3d at 231.
Sharkey in no way undercuts the proposition that employees may waive ERISA benefits. However, as noted above, Sharkey indicates that the language of an employment agreement is not legally sufficient to waive an employee's rights unless the waiver is clear and unambiguous. See Sharkey, 70 F.3d at 230-231 (reversing the District Court's waiver ruling because, inter alia, "Sharkey . . . claims that the release does not clearly and unambiguously waive benefits under plans adopted after he was rehired by the company"); see also Krackow v. Dr. Jack Kern Profit Sharing Plan, No. 00 Civ. 2550, 2002 WL 31409362, at *7 (E.D.N.Y. May 29, 2002) (finding that an ERISA claim had not been waived where the release did not contain "clear and unambiguous" language); Stewart v. Project Consulting Servs., Inc., No. 99 Civ.A. 3595, 2001 WL 1334995, at *3 (E.D. La. Oct. 26, 2001) (rejecting a waiver claim where the contract "does not contain an expression by plaintiff that he will not pursue benefits nor that he relinquishes any right to claim such benefits under ERISA"). Unlike the plaintiff in Capital Cities, for example, see Capital Cities, 141 F.3d at 4, Baraschi did not plainly renounce her right to participate in Silverwear's ERISA plans. Rather, she consented to the omission of a term mandating medical insurance coverage and requested that she be paid on Form 1099. In the absence of language in the Agreement expressly disclaiming ERISA benefits, these acts alone are insufficient to establish, at the pleading stage, that Baraschi waived her rights to participate in one of Silverwear's employee benefit plans.
Sharkey held also that the validity of an ERISA waiver is subject to closer scrutiny than the validity of other waivers. See Sharkey, 70 F.3d at 231 (citing Laniok, 935 F.2d at 1368). In particular, Sharkey reaffirmed that a contractual waiver of ERISA benefits is invalid where, based on the totality of the circumstances, a common law employee does not knowingly and voluntarily disclaim those benefits. See also Vizcaino, 120 F.3d at 1012 (refusing to give effect to an agreement declaring that workers are independent contractors where the agreement was based on a mutual mistake). Even if the language of the Agreement in this case were legally sufficient to constitute a waiver of Baraschi's rights, Baraschi could conceivably prove that, in signing the employment contract, she did not knowingly relinquish her ERISA benefits. Indeed, Baraschi alleges that she requested that she and her family be enrolled in Silverwear's Plans. (Compl. ¶ 17) Accepting that allegation as true, and assuming for the present Baraschi did not make the request in bad faith, it would be premature to conclude that Baraschi knowingly waived her ERISA benefits, including her right to receive medical insurance as provided by Silverwear's Plans.
Silverwear has not established, as a matter of law, that Baraschi was not a "participant" in Silverwear's Plans while she was employed by Silverwear. Consequently, Silverwear has also failed to establish that Baraschi was not entitled to COBRA benefits, which are available to "qualified beneficiar[ies] who . . . lose coverage under [a group health] plan." 29 U.S.C. § 1161(a) (2000). Because a "qualified beneficiary" is defined as a "covered employee," 29 U.S.C. § 1167 (3) (2000), namely "an individual who is (or was) provided coverage under a group health plan," id., and Baraschi adequately alleges that she was covered by Silverwear's Plans, Baraschi's COBRA claim cannot be dismissed at the pleading stage.
IV.
Because Baraschi's ERISA and COBRA claims survive Silverwear's motion to dismiss, the court retains jurisdiction over Baraschi's state law claims, which arise from the same "nucleus of operative fact" as the ERISA claims. See Rubinbaum LLP v. Related Corporate Partners, 154 F. Supp.2d 481, 490-91 (S.D.N.Y. 2001). At this point in the litigation, none of the statutory exceptions to supplemental jurisdiction are implicated. See 28 U.S.C. § 1367(c) (2000).
Silverwear argues that, if the court refuses to dismiss the federal claims, as I have, Baraschi's third claim for relief should be dismissed insofar as Baraschi seeks reimbursement of social security and Medicaid taxes. (See Compl. ¶ 45 ("Defendants refused to make the appropriate Social Security and Medicaid tax payments on Ms. Baraschi's behalf, in violation of New York State Labor Law, Article 6, Section 193.")) According to Silverwear, Baraschi's section 193 claim fails for three reasons: Section 193 does not create a cause of action against an employer who fails to withhold; there is no private right of action for an employer's violation of the Internal Revenue Code; and Social Security and Medicaid taxes are not "wages" for the purposes of New York's Labor Law.
Baraschi contends that defendants' failure to make the Medicaid and Social Security tax payments "is explicitly prohibited by N.Y. Labor Law § 193(1)(a)." That provision states: "No employer shall make any deduction from the wages of an employee, except deductions which: are made in accordance with the provisions of any law or any rule or regulation issued by any governmental agency." N.Y. Lab. Law § 193(1)(a) (McKinney 2002) Far from "explicitly" mandating deductions for Social Security or Medicaid taxes, the provision merely bars deductions that are not made in accordance with the provisions of any law or regulation. Based on the language of the statute alone, Baraschi states no cognizable claim.
Alternatively, if Baraschi is actually attempting to assert a claim based on the Internal Revenue Code, her claim is barred on the ground that the Internal Revenue Code provides no private right of action against employers. See Spilky v. Helphand, No. 91 Civ. 3045, 1993 WL 159944, at *4 (S.D.N.Y. May 11, 1993) ("With respect to the withholding of . . . taxes, such as social security and unemployment taxes, the mere fact that these provisions undoubtedly provide benefits to certain individuals in the workforce does not create a private right of action for the enforcement of such provisions by these potential beneficiaries."); DiGiovanni v. City of Rochester, 680 F. Supp. 80, 82 (W.D.N.Y. 1988) (holding that there is "no cause of action based on the federal withholding statutes"); see also Sirna v. Prudential Sec., Inc., No. 95 Civ. 8422, 1997 WL 53194, at *3 (S.D.N.Y. Feb. 7, 1997) ("T]here is nothing in the wording or effect of the statute to suggest that Congress intended to create, via the tax code, a private right of action against errant fiduciaries.").
Although the complaint cites section 193 only, Baraschi's brief in opposition to the motion to dismiss indicates that she is claiming that Silverwear violated federal tax law. (Pl.'s Opp'n at 6).
Because plaintiff has stated no claim under N.Y. Labor Law § 193(1)(a) or the Internal Revenue Code, I need not decide whether Social Security or Medicaid taxes should be considered "wages" under New York's Labor Law. Even construed liberally, Baraschi's complaint fails to state a claim for which relief can be granted with respect to defendants' alleged nonpayment of Social Security and Medicaid taxes.
V.
Finally, there is no basis for awarding costs and attorneys' fees to Baraschi under 28 U.S.C. § 1927 (2000), which provides that "[a]ny attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such' conduct." Baraschi has offered no proof of bad faith or improper purpose on the part of defendants' counsel in bringing a motion to dismiss Baraschi's ERISA claims. See Keller v. Mobil Corp., 55 F.3d 94, 100 (2d Cir. 1995) (bad faith or improper purpose is required to support a request for fees under 28 U.S.C. § 1927). Defendants' decision to bring the motion based on an exhibit that arguably undermines the substance of the complaint can hardly be deemed "unreasonable" or "vexatious." The fact that defendants' motion has been denied is immaterial.
* * *
For the reasons stated above, defendants' motion to dismiss plaintiff's ERISA and COBRA claims is denied and the court retains jurisdiction over the state law claims. Defendants' motion to dismiss plaintiff's claim for reimbursement of Social Security and Medicaid taxes is granted. Plaintiff's request for attorney's fees is denied.
SO ORDERED.