Opinion
No. C-01-01158 CRB
October 11, 2001
ORDER DISMISSING CASE
The plaintiff Walter Welch, M.D., was an emergency room physician with The Permanente Medical Group ("TPMG") until April 1, 1995. In the course of his TPMG employment, Dr. Welch obtained long-term disability ("LTD") insurance coverage under a New York Life Insurance Company ("New York Life") policy issued to Kaiser Foundation Health Plan, Inc. ("Kaiser"). See Declaration of Walter Welch, Apr. 13, 2001, Ex. 1 ("Policy").
Dr. Welch filed the present complaint in state court against New York Life and Aetna Life Insurance Company ("Aetna") alleging that he was denied benefits under the plan. The complaint contained only state-law causes of action, including, inter alia, breach of contract, breach of the implied covenant of good faith, and negligent and intentional infliction of emotional distress. See Welch Decl., Ex. 4 ("Compl."), ¶ 4. The complaint seeks compensatory and punitive damages in addition to the allegedly improperly withheld benefits. See id. Aetna removed the complaint to this Court. Defendant moved to dismiss, and plaintiff moved to remand.
The plaintiff erroneously named "Aetna U.S. Healthcare" as the defendant in the state court complaint. Aetna Life Insurance Company is a successor to New York Life's policy No. G-12250-256 under which the plaintiff was insured.
The Court initially heard this motion on May 18, 2001. Determining that there was insufficient evidence to rule, the Court permitted for limited discovery and re-briefing of the motions. Those renewed motions are now before the Court.
DISCUSSION
Aetna has filed a motion to dismiss Dr. Welch's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim, asserting that the plaintiff's claims — all of which arise under state law — are preempted by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. According to Aetna, Dr. Welch's sole remedy is under section 503 of ERISA. The plaintiff has filed a motion to remand his complaint to state court on the grounds that his policy is not an employee welfare benefit plan as defined by the act and is therefore not preempted. On that basis, Dr. Welch contends that this Court lacks subject matter jurisdiction over his complaint.
I. Applicable Legal Standards
A. Standard for a Rule 12(b)(6) Motion to Dismiss
A Rule 12(b)(6) motion to dismiss for failure to state a claim is viewed with disfavor and is rarely granted. See Gilligan v. Jamco Dev. Corp., 108 F.3d 246, 249 (9th Cir. 1997). Under Rule 12(b)(6), a complaint should not be dismissed unless a plaintiff can prove "no set of facts in support of his claim that would entitle him to relief." Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). The court must take the non-moving party's factual allegations as true and must construe those allegations in the light most favorable to the non-moving party. See id. The court must also draw all reasonable inferences in favor of the non-moving party. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987).
B. Standard for a Motion to Remand
Under 28 U.S.C. § 1447(c), a district court shall dismiss a case and remand it to state court if it appears that the court lacks subject matter jurisdiction and the complaint was improperly removed. See 28 U.S.C. § 1447(c). As the removing party, Aetna bears the burden of establishing that removal was proper. The removal statute is strictly construed against removal jurisdiction. See Prize Frize, Inc. v. Matrix (U.S.) Inc., 167 F.3d 1261, 1265 (9th Cir. 1999). Unlike a Rule 12(b)(6) motion to dismiss for failure to state a claim, a district court may resolve factual disputes if it is necessary to determine whether the court has subject matter jurisdiction. See Association of Am. Med. Colleges v. United States, 217 F.3d 770, 778 (9th Cir. 2000).
II. Whether the LTD Policy is an ERISA Plan
The central issue raised by both parties' motions is whether the LTD policy under which Dr. Welch claims he is entitled to benefits qualifies as an ERISA plan subject to ERISA's preemption provisions. The plaintiff contends that the policy is not an ERISA plan and that it falls under the "safe harbor" regulatory exception outlined in 29 C.F.R. § 2510.3-1(j). Aetna counters that the policy does not qualify under that exception and that the evidence the plaintiff has submitted in support of his motion and in opposition to Aetna's motion is inadmissible and contrary to the terms of the policy.
The Court need not rule on these evidentiary motions as it finds that removal is appropriate.
Pursuant to ERISA's preemption provision, a plaintiff may not pursue claims arising under state laws "insofar as [those laws] may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title." 29 U.S.C. § 1144(a) (West 2000). The U.S. Supreme Court has noted that "the express pre-emption provisions of ERISA are deliberately expansive, and designed to `establish pension plan regulation as exclusively a federal concern.'" Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45-46 (1987) (quoting Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981)); see Greany v. Western Farm Bureau Life Ins. Co., 973 F.2d 812, 817 (9th Cir. 1992) (noting that section 1144(a) "contains one of the broadest preemption clauses ever enacted by Congress"). "A state law `relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983). "The ERISA preemptive provision is to be broadly construed and extends to common law tort and contract actions." Gibson v. Prudential Ins. Co., 915 F.2d 414, 416 (9th Cir. 1990). Whether a policy qualifies as an ERISA plan is a factual issue to be decided in light of all the surrounding circumstances from the point of view of a reasonable person. See Zavora v. Paul Revere Life Ins. Co., 145 F.3d 1118, 1120 (9th Cir. 1998); Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489, 492 (9th Cir. 1989) (en banc).
Under ERISA, a policy is considered an "employee welfare benefit plan" or "welfare plan" when the policy is: (1) "a plan, fund, or program" (2) "established or maintained" (3) "by an employer or by an employee organization, or by both" (4) for the purpose of providing, inter alia, benefits in the event of disability (5) "for [the plan's] participants or their beneficiaries." 29 U.S.C. § 1002(1); see Kanne, 867 F.2d at 492. To aid in the determination of whether a policy qualifies as a plan governed by ERISA, the U.S. Department of Labor has issued a "safe harbor" regulation excluding certain group insurance programs from section 1002(1)'s definition of an employee welfare benefit plan. That regulation provides that the terms "employee welfare benefit plan" and "welfare plan" do not include:
a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which:
(1) No contributions are made by an employer or employee organization;
(2) Participation the program is completely voluntary for employees or members;
(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the pro g ram to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and
(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any pro fit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.29 C.F.R. § 2510.3-1(j). An employer's failure to satisfy any one of the four safe harbor requirements conclusively establishes that the insurance policy cannot be excluded from ERISA coverage. See Stuart v. UNUM Life Ins. Co., 217 F.3d 1145, 1153 (9th Cir. 2000) ("Other circuit courts agree with our conclusion and have consistently held that employers must satisfy all four requirements of the safe harbor regulation for otherwise qualified group insurance plans to be exempt from ERISA coverage."); id. at 1149-53 (reviewing a series of Ninth Circuit opinions). If an employer acts as a plan administrator in name only but otherwise still satisfies the safe harbor requirements, the employer's designation as a plan administrator does not violate the third requirement. See id. at 1152-53 (discussing Zavora).
Aetna contends that Kaiser and TPMG do not satisfy any of the safe harbor requirements, let alone all four. In support of his motion to remand, Dr. Welch submitted a declaration in which he indicates that: (1) employees pay all of the premiums in the plan; (2) the plan is voluntary; (3) TPMG does not endorse the plan; and (4) TPMG does not receive any consideration beyond administrative expenses.
Plaintiff has objected to the evidence offered by defendant regarding the pre-1993 policy. The Court agrees that the pre-1993 policy is irrelevant for purposes of this motion. Accordingly none of that evidence was relied upon. Likewise, evidence regarding the policy after plaintiff's disability (April 1, 1995) is similarly irrelevant and not relied upon by the Court.
The time frame of the evidence was a significant source of confusion in the first hearing. Plaintiff initially obtained disability coverage through Kaiser in 1977. But, as is now clear, the LTD policy under which plaintiff was covered changed significantly in 1993. Defendant has presented evidence, which they continue to rely on, clearly showing that the pre-1993 policy was an ERISA plan. But plaintiff became disabled on April 1, 1995, so it is not clear why the circumstances of the pre-1993 policy should be relevant. Defendant states that, "plaintiff offers no authority for his implicit contention that if an existing and ongoing benefit plan which is subject to ERISA is amended to make participation voluntary and contributory, ERISA ceases to apply to the plan." Aetna reply brief at 5-6. However, defendant has offered no authority for the contrary proposition. Common sense suggests that the plan should be examined at the time of the disputed claim, not at an earlier time. This conclusion is given some support by a recent Ninth Circuit opinion regarding COBRA coverage. In that case an individual exercised their ERISA provided conversion right to convert their employer's ERISA plan into individual coverage upon termination of employment. The court held that the state law claims arising from the individual coverage were not preempted by ERISA — the origins of the individual coverage were unimportant. Waks v. Empire Blue Cross/Blue Shield, 2001 WL 936111, C.A.9 (Nev.), 2001. Therefore the Court holds that the safe harbor factors will be examined as of the time of the disability. Each factor is examine in turn below.
B. Employer Contributions
Since at least 1993, Dr. Welch paid all of the premium; TPMG did not contribute any of the premium payment. Testimony of JoAnne Carroll, at 59:1-9; Enrollment Form. While defendant presented evidence regarding pre-1993 employer contributions at the first hearing, they have offered no evidence regarding post-1993 employer contributions. As Ms. Carroll stated, no such payments were made. Testimony of JoAnne Carroll, at 59:1-9. Therefore, the LTD policy satisfies the first safe harbor condition.
Ms. Carrol is a Senior Benefits Analyst at Kaiser. She was responsible for "ensuring and maintaining the legally-compliant status" of the LTD policy.
C. Voluntary Enrollment
The policy itself is arguably determinative as to the second factor (whether participation in the program is voluntary). The policy indicates that an employee must authorize the employer in writing to make payroll deductions for the premiums in order to become insured and that the employee can terminate the insurance by failing to make his required contributions. See Policy at 2, 3. The policy thereby at least implies that coverage is voluntary; moreover, it does not indicate expressly that coverage is mandatory. In addition, a summary of the LTD policy benefits indicates that "[p]articipation is voluntary." See Welch Decl., Ex. 3, at 1.
While defendant has again pointed to pre-1993 evidence, that evidence is not relevant. The evidence produced in discovery clearly shows that enrollment in the LTD plan was voluntary in 1993, and at the time of plaintiff's claim. Ms. Carroll stated that the enrollment was voluntary. Carroll testimony. at 58:6-14. The enrollment form and the letter TPMG sent to its physicians both indicate that enrollment is voluntary. Enrollment Form; Dear Physician Letter from TPMG dated March 19, 1993. Therefore, the LTD policy satisfies the second safe harbor condition.
D. Endorsement of the Policy
The key inquiry in this case is the third safe-harbor factor. This factor is really just a clarification of the statutory requirement that an ERISA plan be "established or maintained by an employer." 29 U.S.C. § 1002(1). The third safe-harbor condition merely sets forth a series of passive, administerial activities that do not rise to the level of "establishing" or "maintaining" an ERISA plan.
In examining this factor, plaintiff argues that the Court should draw a distinction between TPMG, a Kaiser entity and plaintiffs direct employer, and Kaiser, the parent company that actually performed much of the administrative work. The argument fails on two grounds. First the definition of "employer" under ERISA is broad enough to encompass both Kaiser and TPMG. See 29 U.S.C. § 1002(5). Secondly, many of the actions below are attributed directly to TPMG (plaintiff's direct employer) and would be sufficient to support a finding that the LTD policy was an ERISA plan.
Plaintiff objects to Joanne Carroll's testimony that the Kaiser organizations are related. This objection is overruled. As a Senior Benefits Manager, Ms. Carroll is competent to give this testimony. It should also be noted that Ms. Carroll's testimony is not necessary to conclude that both TPMG and Kaiser were plaintiff's employer under ERISA. Other evidence in the record supports this finding.
The policy itself is unhelpful with respect to the third safe harbor factor regarding the functions performed by the employer and whether the employer endorses the policy through its actions. Both parties agree that Kaiser or TPMG engaged in the permissible functions of permitting the insurer to publicize the plan, collecting premiums through payroll deductions, and remitting the premiums to the insurer. Dr. Welch also acknowledges that TPMG performed other functions such as distributing brochures, forms, and other materials to employees and providing Aetna with employee data such as employee salaries, employee identification information, and job descriptions. Dr. Welch contends, however, that those functions are merely ministerial and do not make Kaiser or TPMG a plan administrator such that the LTD policy falls outside the safe harbor requirements. See 29 C.F.R. § 2509.75-8 (West 2001) (noting that a person or entity who performs purely ministerial functions such as calculating benefits and preparing employee communications material does not necessarily qualify as a plan fiduciary); du Mortier v. Massachusetts Gen. Life Ins. Co., 805 F. Supp. 816, 820 (C.D. Cal. 1992) (holding that an employer who kept a file of forms on hand for the employees had not established or maintained an ERISA plan). Neither the policy nor the complaint disclose what actions Kaiser or TPMG may have taken that would constitute endorsement of the LTD policy.
But the evidence produced since the last hearing shows that TPMG went beyond the limitations of the third safe harbor. Therefore the LTD policy is an ERISA plan. Discovery has produced significant evidence regarding the design and implementation of the LTD policy that was offered to plaintiff in 1993. That evidence shows that Kaiser and TPMG played the central role in the creation and design of the LTD policy. Representatives from TPMG, Kaiser, and New York Life conducted negotiations regarding design of the policy. Indeed, New York Life was "not supposed" to make any direct contact with physicians. Carroll testimony, at 30:13-15. The correspondence produced in discovery shows the active involvement of Kaiser and TPMG in the design of the LTD policy. See Supplemental Declaration of Rebecca A. Hull, Ex. A and Declaration of Michael Evans, Ex. 1. For example, a letter dated May 6, 1993 from Connie Wilson, Human Resource Service Manger at TPMG, to Ms. Gerry Mille of New York Life, detailed changes to the LTD policy approved by the TPMG Board that were to be made to the LTD policy. Those changes included increasing the basic benefit from 50 percent of base compensation to 60 percent and automatic cost-of-living adjustments. Subsequent to these changes, TPMG sent out a "Dear Physician" letter summarizing the changes and informing physicians of the new enrollment criteria. The LTD policy was tailored to specifications provided by TPMG and Kaiser.
Plaintiff has objected to much of this correspondence as irrelevant. Plaintiff's objections, at 3. While plaintiff does not specify, this objection is presumably based upon the fact that some of this correspondence involved Kaiser, not TPMG. This objection is overruled. As discussed above, the definition of "employer" under ERISA is broad enough to encompass both Kaiser and TPMG. See 29 U.S.C. § 1002(5). Furthermore, the Court does not need to rely on this evidence in concluding that the LTD policy is an ERISA plan, because the actions attributed directly to TPMG (plaintiffs direct employer) would be sufficient to support the finding.
These facts present a significant contrast to du Mortier v. Massachusetts Gen. Life Ins. Co., 805 F. Supp. 816, 821 (C.D. Cal 1992), a case relied upon by plaintiff, where the court found that the:
employer played no role in the creation or administration of the plan. The only things that the employer did was allow the insurer to market individual policies to its employees, keep a file of forms on hand for the employees, and make the payroll deductions on behalf of the participating employees.
Id., at 820.
Defendant also offers new evidence of the claims appeal process, which they claim forecloses any doubt regarding the applicability of the third safe harbor condition. In deposition, Ms. Carroll described the process. Carroll testimony, at 55:21-58:2. If New York Life denied a claim under the LTD policy, the beneficiary could appeal that decision to a Kaiser administrative committee. If the committee approved the appeal, New York Life would pay the claim, but charge Kaiser the approved amount. According to defendant, this charge to Kaiser occurred "outside the provisions of the New York Life insurance contract." Defendant's reply at 1-2; Carroll testimony, at 57:4-16. Such a program would seem to definitively establish an ERISA plan. However, defendant provides no written documentation of such a program. Nor does defendant offer any evidence that any claims were paid in this manner. Indeed, Ms. Carroll has no personal knowledge that such a payment ever occurred. Carroll testimony, at 58:3-5.
Because the other evidence outline above is sufficient, the Court need not rely on the existence of the claims appeal process in reaching its conclusion that the LTD policy was an ERISA plan. Accordingly, the Court will not engage in an analysis of the evidence regarding the claims appeal process.
The evidence laid out above demonstrates that the activities of TMPG and Kaiser went well beyond the limits provided in the third safe harbor condition.
E. Consideration Received by Employer
The policy does not clearly establish whether the employer received consideration "other than reasonable compensation, excluding any pro fit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs" as required under the fourth safe harbor requirement. One provision in the policy indicates that any divisible surplus of premiums due that is "ascertained and apportioned to this policy as a dividend shall be paid in cash" to Kaiser, Policy at 14, but that provision does not indicate whether the surplus is returned to employees or whether the surplus constitutes consideration beyond reasonable compensation for administrative services.
But the evidence produced since the first hearing shows that TPMG and Kaiser received no consideration (other than reasonable costs for administrative expenses) in connection with the LTD policy after 1993. Carroll testimony, at 70:18-71:2. Therefore, the LTD policy satisfies the fourth safe harbor condition.
CONCLUSION
Because defendant has met its burden in demonstrating that the LTD policy does not qualify under the regulatory safe harbor, the Court finds that the LTD policy is an ERISA plan. Accordingly the motion to remand is DENIED, this Court has jurisdiction. Furthermore, defendant's motion to dismiss is GRANTED with leave to amend.