Gruber v. Hubbard Bert Karle , 159 F.3d 780 ( 1998 )

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit
10-26-1998
Gruber v. Hubbard Bert Karle
Precedential or Non-Precedential:
Docket 97-3477
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Recommended Citation
"Gruber v. Hubbard Bert Karle" (1998). 1998 Decisions. Paper 251.
http://digitalcommons.law.villanova.edu/thirdcircuit_1998/251
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Filed October 26, 1998
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 97-3477
ROBERT GRUBER, THERESA PENZA, on behalf of
themselves and all others similarily situated including
their dependents; GLENWOOD BEER DISTRIBUTORS,
INC.; BEECHWOOD INDUSTRIES, INC., on behalf of
themselves and all other employers similarily situated;
RALPH GENOVESE; AL CHANEY; BRIAN MILLER,
representative employee plaintiffs; PARAMOUNT LISTS,
INC., as a representative employer plaintiff
v.
HUBBARD BERT KARLE WEBER, INC.; JOHN GORDON;
J. PATRICK KARLE; RICHARD McCLURE; RONALD D.
MAXWELL; TIMOTHY MEHL; WILLIAM M. HILBERT;
J. BOYD BERT, JR.; C. JOHN WEBER, III; BUCKLEY
HUBBARD; BUCKLEY HUBBARD, III, individually and as
duly elected members of the Board of Directors of LEEA
and/or officers of LEEA
v.
PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION,
Third-Party Defendant
(D.C. Civil No. 85-00063E)
WESTERN WORLD INSURANCE COMPANY, INC.
and TUDOR INSURANCE COMPANY
v.
BUCKLEY HUBBARD, JR.; BUCKLEY HUBBARD, III;
J. BOYD BERT, JR.; J. PATRICK KARLE; C. JOHN
WEBER; JOHN GORDON; RICHARD McCLURE;
RONALD D. MAXWELL; TIMOTHY MEHL; WILLIAM
HILBERT; HAMOT MEDICAL CENTER OF THE CITY OF
ERIE, PENNSYLVANIA, individually and on behalf of all
others similarly situated; ST. JOSEPH RIVERSIDE
HOSPITAL; ROBERT GRUBER, individually and on behalf
of all others similarly situated; and GLENWOOD BEER
DISTRIBUTORS, INC. individually and on behalf of all
others similarly situated; ERIE INDEMNITY COMPANY;
INDUSTRIAL INSURANCE COMPANY; PENNSYLVANIA
INSURANCE GUARANTY ASSOCIATION; LEXINGTON
INSURANCE COMPANY
v.
SAINT VINCENT HEALTH CENTER,
(Intervenor in District Court)
(D.C. Civil No. 87-00213E)
Western World Insurance Company, Inc.
and Tudor Insurance Company,
Appellants
On Appeal From the United States District Court
For the Western District of Pennsylvania
(D.C. Civil Action No. 85-cv-00063E)
(District Judge: Honorable Maurice B. Cohill, Jr.)
Argued June 17, 1998
BEFORE: SLOVITER, STAPLETON, and McKEE,
Circuit Judges
(Opinion Filed: October 26, 1998)
Susan Katz Hoffman (Argued)
L. Suzanne Forbis
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Philadelphia, PA 19103-2799
Attorneys for Appellants
2
Craig A. Markham (Argued)
Elderkin, Martin, Kelly & Messina
150 East Eighth Street
Erie, PA 16501
Attorney for Appellees
Robert Gruber, Theresa Penza, on
behalf of themselves and all others
similarly situated
Richard W. Hosking
Kirkpatrick & Lockhart
1500 Oliver Building
Pittsburgh, PA 15222
Attorney for Appellees Hubbard,
Bert, Karle, Weber, Inc.; J. Patrick
Karle; Boyd Bert; C. John Weber,
III; and Buckley Hubbard, III
James D. Morton
Buchanan Ingersoll Professional
Corporation
One Oxford Centre
301 Grant Street, 20th Floor
Pittsburgh, PA 15219-1410
Attorney for Appellees John
Gordon; Richard McClure; Ronald
Maxwell; Timothy Mehl; and
William Hilbert
Edwin W. Smith
Ely & Smith
23 West Tenth Street
Erie, PA 16501
Attorney for Appellee Hamot
Medical Center, individually and
on behalf of all others similarly
situated
3
Michael S. Jan Janin
Quinn, Buseck, Leemhuis,
Toohey & Kroto
2222 West Grandview Boulevard
Erie, PA 16506-4508
Attorney for Appellee
Saint Vincent Health Center
OPINION OF THE COURT
STAPLETON, Circuit Judge:
This is the fourth installment in this lengthy and
tortuous insurance saga. The case has come back to us
after we dismissed it because the district court had not
adjudicated all the claims in one of the actions in the
consolidated case. The district court has since issued an
order dismissing all ERISA claims, denying appellant's
petition for a declaratory judgment, and entering final
judgment pursuant to Rule 54(b) of the Federal Rules of
Civil Procedure. We will affirm in part and reverse in part.
I.
The Lake Erie Employers' Association ("LEEA") was
formed in September 1981 as a non-profit corporation with
the stated purpose of "foster[ing] and promot[ing] the
mutual interests of those individuals, partnerships,firms,
associations, and corporations who are engaged in business
in the Northwestern Pennsylvania Area" and "foster[ing] and
advanc[ing] a mutual cooperation and understanding
among such businesses with the other economic entities
affecting business in the area." See LEEA Certificate of
Incorporation, at A65. "Any individual, partnership, firm,
association, or corporation . . . engaged in business in the
Northwestern Pennsylvania area employing at leastfive (5)
but less than 150 employees and who is interested in the
purposes of the organization" could apply for membership
in the association.1 LEEA Bylaws Art. IV, P 1, at A72.
_________________________________________________________________
1. The Bylaws were amended on April 25, 1983, to permit businesses
employing up to 225 employees to apply for membership. See A103-04.
4
Associate membership was available for businesses having
"a demonstrable material interest in the purposes of the
organization" but not meeting the membership criteria. Id.
P 3, at A72.
LEEA was the brainchild of J. Patrick Karle, one of the
principals of the brokerage firm Hubbard Bert Karle Weber,
Inc. ("HBKW"). Karle, who also served as President and
Chairman of the Board of LEEA, testified that the idea for
LEEA arose when HBKW observed the success that large
employers had with self-funded health and benefit plans,
and concluded that it might be possible for smaller
employers to enjoy the same success with a self-funded
alternative if they banded together. Karle Dep. of Oct. 7,
1986, at A743-44. He testified that LEEA was formed both
to provide small businesses with an alternative health
benefit option to that available from Blue Cross/Blue Shield
and to serve as a forum where small business people could
obtain information about changes in the laws and
regulations governing employee benefits. Id. at A751.
Toward the latter purpose, LEEA published a newsletter,
approximately on a quarterly basis, that discussed changes
in benefits law and provisions, as well as other matters that
might be of interest to a small business person, such as tax
and estate law. In addition, the association held two
meetings a year at which legislators and other speakers
would discuss topics of interest to the members or local
health care providers would describe "wellness programs"
that could assist the employers in the cost-effective
provision of health benefits to their employees.
Despite its informational activities, it is clear that LEEA's
primary purpose was the provision of health and other
benefits to the employees of its employer-members. The
first order of business, after incorporation and the
appointment of officers and directors, engaged in by the
Board of Directors of LEEA was "a discussion of the need
to provide self-insured health benefits and dental benefits
for members of [LEEA]" and resolutions"to establish one or
several health, dental, and such other benefit plans which
shall be offered to the members of this corporation in
Pennsylvania, Ohio and New York states" and to establish
"the [LEEA] Benefit Trust and the [LEEA] Accident and
5
Health Plan" effective November 1, 1981. Minutes of
Meeting of Oct. 8, 1981, at A110-11. In addition, a review
of those minutes of later Board meetings that are provided
in the record reveals that discussion at the meetings
centered almost exclusively on matters related to the
various benefit plans administered by LEEA, including plan
amendments, rate and billing adjustments, and collection
procedures. In addition, there is no indication in the record
that LEEA had any members that were not also
participants in the LEEA Plan. Indeed, although "[a]ll
proceedings in relation to membership applications [were]
secret and confidential," LEEA Amended Bylaws, Art. V,
P 2, at A89, there is an implication in the record that
membership decisions were based on underwriting
considerations.
It is also clear that LEEA and HBKW, the brokeragefirm,
were closely interrelated. As we have noted, the idea for
LEEA came from an HBKW principal. LEEA's Board of
Directors, which conducted all of LEEA's business and
affairs, originally consisted of the five principals of HBKW,
who were also the incorporators and officers of LEEA. In
October 1982, four of the HBKW principals resigned--
although Karle remained as Chairman--and four new
employer-member directors joined the Board. However, the
bylaws, as amended in December 1982, provided that the
four former directors, who remained officers of LEEA, would
be "ex-officio members of the Board of Directors by virtue of
the independent management functions which they perform
for the Corporation . . . . The ex-officio members shall have
equal standing and authority with the other members of the
Board." LEEA Amended Bylaws, Art. VII, P 1, at A90.
HBKW and LEEA entered into an Administrative
Agreement on October 31, 1981, under which LEEA
appointed HBKW the Administrative Agent of the LEEA
Plan and Benefit Trust. Under the agreement, HBKW
received fees from LEEA in exchange for HBKW's
maintaining records and processing claims in connection
with the LEEA Plans. LEEA business was conducted out of
the offices of HBKW, and LEEA and HBKW had the same
address. There was no separately designated office space
for LEEA within the HBKW offices, and LEEA had no
employees during most of its existence.
6
In 1985, LEEA became insolvent, and the Plan and Trust
were terminated. This prompted employer-members and
employee beneficiaries (and their dependents) of the LEEA
Plan to file two suits against HBKW, HBKW's principals,
and the officers and directors of LEEA. The complaints,
which were consolidated in a single class action, alleged
violations of fiduciary duty and other obligations under
ERISA and state law breaches of contract, fiduciary duty,
and duty of care.
Appellants Western World Insurance Co. and Tudor
Insurance Co. (collectively, "Western World") had issued
directors' and officers' liability insurance policies to the
officers and directors of LEEA. After the lawsuits were filed,
Western World filed a declaratory judgment action seeking
a declaration that it was not liable under those policies. It
relied primarily on a policy exclusion for claims arising
under ERISA.2 This declaratory judgment action was
consolidated with the class action for all purposes.
In response to a motion by Western World for summary
judgment, the district court entered an order declaring that
its ERISA policy exclusion was valid and that the policy did
not, therefore, cover claims arising out of ERISA. The
court's order did not, however, address whether any of the
claims in the class suit were ERISA claims or whether
Western World was liable with respect to any of those
claims. Nonetheless, the court directed that the declaratory
judgment action be closed and that the parties proceed
with prosecuting the underlying actions. The district court
certified the issue relating to the validity of the ERISA
exclusion, the defendants appealed, and we affirmed the
district court's decision. We expressly "assume[d] that the
district court [would] now promptly address the overarching
issue of the applicability of ERISA to the plans which are
_________________________________________________________________
2. The insurance policy contains two significant clauses. The first is
contained in a section entitled "Exclusions" and states that the policy
does not apply to claims "[a]rising out of [ERISA]." A465. The second is
found on a separate page entitled "ERISA Liability Exclusion
Endorsement," which provides: "It is understood and agreed that the
coverage afforded under this policy shall not apply as respects liability
imposed upon an insured (or which is imputed to an insured) under
[ERISA]." A467.
7
the subject of the underlying actions against the directors."
Western World Ins. Co., Inc. v. Hubbard, No. 96-3698, slip
op. at 3 (3d Cir. July 16, 1993) (judgment order).
On remand, Western World argued that the LEEA plan
was an "employee welfare benefit plan" ("EWBP") within the
meaning of ERISA.3 It also argued, in the alternative, that
each member employer's individual plan was an EWBP
within the meaning of ERISA. The district court granted
partial summary judgment to the officers and directors of
LEEA, holding that the LEEA plan was not an EWBP
governed by ERISA because it was not "established or
maintained by" an employer organization acting in the
interests of its members. Over Western World's objection,
the class action plaintiffs and defendants reached a
settlement agreement. Western World appealed the district
court's grant of partial summary judgment. We found that
Western World's appeal was not moot, but dismissed for
lack of jurisdiction, explaining:
Absent a Rule 54(b) certification, an order is notfinal
and appealable as such unless it disposes of all claims
remaining before the court. Here we find no order
adjudicating Western World's claim which seeks a
declaratory judgment that "the Western World's policy
provides no coverage for and is not applicable to any
claim, demand, or cause of action arising from or
relating to the HBKW litigation." Where cases are
consolidated, a judgment on the claims in one
consolidated action is not an appealable final order if it
does not also adjudicate all claims in the other
consolidated action.
Gruber v. Hubbard, Bert, Karle, Weber, Inc., No. 96-3277,
slip op. at 16 (3d Cir. July 18, 1997) (not-for-publication
opinion). We dismissed the appeal and requested that the
court, "before entering a final order, provide an explanation
for its apparent rejection of Western World's contention that
each employer's individual plan constitutes an `employee
welfare benefit plan' and, accordingly, that the class
plaintiffs' claims, by operation of the doctrine of complete
preemption, can only be ERISA claims." Id. at 17.
_________________________________________________________________
3. See 29 U.S.C. S 1002(1).
8
The district court responded to the jurisdictional defect
by amending its May 6, 1994, order to deny Western
World's motion for a declaratory judgment that it is not
liable for any claims flowing from the HBKW litigation. It
explained:
As the policies issued by Western World contain an
ERISA exclusion, the insurer is not liable for any
ERISA claims. However, we have determined that the
Plan does not fall within the scope of ERISA, and thus
non-ERISA claims, for which Western World may
indeed be liable, remain very much a part of this
action.
D. Ct. Op. at 3. The district court also responded to our
request that it explain its apparent rejection of Western
World's alternate line of argument. The court first
acknowledged that "even where a multi-employer trust is
not governed by ERISA, by subscribing to the trust, each
individual employer may have established an individual
ERISA plan." D. Ct. Op. at 5. The court then stated:
Western World points to no evidence, however, to
support its assertion that the individual plans at issue
here are ERISA plans. It states that "the individual
employers purchased health insurance for their
employees after joining LEEA and agreeing to
participate in the Trust. Although Western World
claims this is "powerful proof that ERISA governs the
individual plans," this assertion is contradicted by the
case law. A mere purchase of insurance, although
evidence that a plan may exist, is not in and of itself
proof that an ERISA plan does exist.
Western World points to no proof that the individual
employers even "purchased" health insurance. Western
World simply offers this Court no evidence from which
to conclude that the employer members of the LEEA
established individual benefit plans within the meaning
of ERISA. Accordingly, we will affirm our grant of
partial summary judgment . . . and hold that there are
no ERISA claims remaining in this litigation.
D. Ct. Op. at 5-6 (citations omitted). Western World appeals
the district court's judgment. The class action plaintiffs are
the appellees herein.
9
We have jurisdiction over this appeal pursuant to 28
U.S.C. S 1291. We must determine: first, whether the
district court properly concluded that the LEEA plan was
not an EWBP under ERISA; and, second, whether the court
properly concluded that the individual employer-members
of LEEA had not established single-employer EWBPs under
ERISA.
We exercise plenary review over the district court's grant
of partial summary judgment. See Bixler v. Central Pa.
Teamsters Health & Welfare Fund, 12 F.3d 1292, 1297 (3d
Cir. 1993). "A motion for summary judgment shall be
granted if the court determines `that there is no genuine
issue as to any material fact and that the moving party is
entitled to judgment as a matter of law.' " Id. (quoting Fed.
R. Civ. P. 56(c)).
II.
A. The LEEA Plan
The statutory provisions that determine whether a multi-
employer plan is governed by ERISA define an "employee
welfare benefit plan" as:
any plan, fund, or program which was . . . established
or 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, through the purchase of insurance or
otherwise . . . medical, surgical, or hospital care
benefits. . . .
29 U.S.C. S 1002(1). An "employer" includes "any person
acting directly as an employer, or indirectly in the interest
of an employer, in relation to an employee benefit plan; and
includes a group or association of employers acting for an
employer in such capacity." Id. S 1002(5). The question we
must resolve, then, is whether the LEEA Plan was
"established or maintained" by "a group of employers"
acting "indirectly in the interest of " its member employers
in relation to the Plan.
10
Congressional commentary, Department of Labor (DOL)
advisory opinions, and case law from other circuits
applying ERISA to multi-employer plans have interpreted
the statute to preclude ERISA coverage of plans established
for entrepreneurial purposes. See, e.g., H.R. Rep. No. 1785,
94th Cong., 2d Sess. 48 (1977) ("[P]lans . . . established
and maintained by entrepreneurs for the purpose of
marketing insurance products or services to others .. . are
not established or maintained by the appropriate parties to
confer ERISA jurisdiction, nor is the purpose for their
establishment or maintenance appropriate to meet the
jurisdictional prerequisites of the Act.");4 DOL Op. No. 81-
7A, 1981 WL 17728, at *2 (E.R.I.S.A. Jan. 12, 1981)
(stating that it is "the Department's position that an
organization that functions as a vehicle for insurance
entrepreneurs to market insurance products or services,
not as a bona fide program to provide benefits to
employees, is not an employee benefit plan within the
meaning of ERISA"); MDPhysicians & Assoc., Inc. v. State
Bd. of Ins., 957 F.2d 178, 185 (5th Cir. 1992) (holding that
multi-employer plan sponsored by a physician's association
was not an EWBP because association did not act
"indirectly in the interest of" members; rather, it was an
"entrepreneurial venture" that "acted for itself ").
Giving effect to the intention to exclude entrepreneurial
ventures, the cases and advisory opinions have imposed
two broad requirements for a multi-employer plan to
constitute an EWBP. First, the group of employers that
establishes and maintains the plan must be a "bona fide"
association of employers "tied by a common economic or
representation interest, unrelated to the provision of
benefits." Wisconsin Educ. Ass'n Trust v. Iowa State Bd.,
804 F.2d 1059, 1063 (8th Cir. 1986); see also Moideen v.
Gillespie, 55 F.3d 1478, 1481 (9th Cir. 1995);
MDPhysicians, 957 F.2d at 185-86; Credit Managers Ass'n
_________________________________________________________________
4. This report has been described as " `virtually conclusive' as to
legislative intent." MDPhysicians, 957 F.2d at 184; Hamberlin v. VIP Ins.
Trust, 434 F. Supp. 1196, 1199 (D. Ariz. 1977); cf. Sioux Tribe v. United
States, 316 U.S. 317, 329 (1942) (describing committee report "made
within five years of its passage" as "virtually conclusive as to the
significance of th[e] Act" discussed therein).
11
v. Kennesaw Life & Accident Ins. Co., 809 F.2d 617, 625
(9th Cir. 1987). Second, the employer-members of the
organization that sponsors the plan must exercise control,
either directly or indirectly, both in form and in substance,
over the plan. See DOL Op. No. 96-25A, 1996 WL 634362,
at *2-3 (E.R.I.S.A. Oct. 31, 1996) ("[I]t is the Department's
view that the employers that participate in a benefit
program must, either directly or indirectly, exercise control
over the program, both in form and substance, to act as a
bona fide employer group or association with respect to the
program.").
The district court stated that both of the above factors
must be considered in determining whether an organization
is acting in the interests of an employer. We agree. The
commonality of interest requirement is well-established in
the case law, and the control factor has been consistently
advanced as a requirement in DOL advisory letters since
the early 1980s. See, e.g., DOL Op. No. 83-48A, 1983 WL
22533, at *3 (E.R.I.S.A. Sep. 14, 1983). In addition to the
fact that "[t]he Department of Labor's construction of ERISA
is entitled to a substantial measure of deference,"
International Ass'n of Entrepreneurs of Am. Benefit Trust v.
Foster, 883 F. Supp. 1050, 1061 (E.D. Va. 1995), the
control requirement is a reasonable means of ensuring that
the administrators of multi-employer welfare benefit plans
in fact act "in the interest of " their employer members.
Therefore, we conclude that to qualify as an "employer" for
ERISA purposes, an employer group or association must
satisfy both the commonality of interest and control
requirements.
The district court found that the LEEA Plan satisfied
neither of these requirements. It found that control was
lacking because the employer members of the Plan's Board
of Directors were outnumbered by HBKW principals with
"ex officio" Board membership. Hence, the HBKW principals
had the power to control the Board, and thus the power to
control the Plan. Even though the ex-officio members never
voted at meetings, the district court "assume[d] they would
have exercised that power had the decisions of the board
been contrary to their wishes." D. Ct. Op. (May 6, 1994) at
7. The court also found commonality of interest to be
12
lacking because "there was no nexus among the individuals
benefitted by the Plan and the entity providing those
benefits, other than the Plan itself" since LEEA "was
comprised of disparate and unaffiliated businesses" who
had no relationship prior to the inception of the Plan. Id. at
8.
We find that the district court erred on the control issue
but decided the common interests issue correctly. On
summary judgment, it was inappropriate for the court to
base its conclusion that the HBKW principals controlled the
Board on an assumption that they would vote at Board
meetings if they so desired. Moreover, viewed in the light
most favorable to Western World, the non-moving party,
there was evidence in the record to suggest that the LEEA
employer members did indirectly control the administration
of the Plan through their representation on the Board. For
example, the minutes of the Board meetings indicate that
the employer members of the Board discussed and voted on
many aspects of the day-to-day administration of the Plan,
including amendments to the LEEA Plan and rate
adjustments, whereas the ex-officio members were only
considered "guests" at those meetings. See, e.g., Minutes of
4/25/83 Meeting, at A124. Hence, the court erred in
concluding that the employer-members lacked control over
the Plan as a matter of law.
Nonetheless, Western World has not established the
requisite commonality of interest to survive summary
judgment. Courts considering the issue have found that a
sufficient bond exists between employers engaged in the
same line of business in the same geographical area, see,
e.g., Steen v. John Hancock Mutual Life Ins. Co., 106 F.3d
904, 916 (9th Cir. 1997), but they have consistently
rejected the contention that heterogenous businesses that
share nothing more than a common size and a high regard
for the "entrepreneurial spirit" enjoy such a bond, see, e.g.,
Moideen, 55 F.3d at 1481 (no commonality of interest
where membership limited to employers with fewer than
500 employees); International Assoc. of Entrepreneurs, 883
F. Supp. at 1058-59 (no commonality of interest where
membership limited to employers sharing "adherence to the
principles of entrepreneurial spirit and free enterprise").
13
The LEEA Plan bears greater resemblance to the latter
types of organizations than the former.
LEEA membership included such diverse groups as tool
and die makers, an extended health care facility, a
manufacturer of airplane engine parts, the operator of the
local Holiday Inns, local law firms, a manufacturer of office
partitions, a local realtor group, a manufacturer of knives,
a beer distributor, an automobile dealer, and several social
clubs. In short, the only common trait that LEEA employer-
members possessed was that they employed fewer than 225
employees. However, common size is not a bona fide
organizational relationship. See Smith, 1997 WL 297096 at
*4; Moideen, 55 F.3d at 1481. Accordingly, LEEA was not a
"bona fide employer organization" that could establish and
maintain an EWBP within the meaning of ERISA.5
_________________________________________________________________
5. This conclusion is buttressed by consideration of the factors that the
DOL has suggested are relevant to the factual determination of whether
a group of employers participating in a multi-employer plan is a "bona
fide employer association" within the meaning of S 1002(5). They include:
how members are solicited; who is entitled to participate and who
actually participates in the association; the process by which the
association was formed, the purposes for which it was formed, and
what, if any, were the preexisting relationships of its members;
the
powers, rights, and privileges of employer members that exist by
reason of their status as employers; and who actually controls and
directs the activities and operations of the benefit program.
DOL Op. No. 96-25A, 1996 WL 634362, at *3.
Consideration of the first three factors is particularly instructive in
this
case. First, members of LEEA were solicited by salespeople working for
HBKW who attempted to sell both participation in the LEEA Plan and
other HBKW insurance products. See Karle Dep. of 5/22/86, at A723,
729. Second, the restrictions placed on eligibility membership were few.
Membership in LEEA was originally limited to employers with fewer than
150 employees who did business in Northwestern Pennsylvania.
However, membership was subsequently extended to employers with up
to 225 employees and to those who did business in Northeastern Ohio.
Additionally, the bylaws allowed the admission of"associate members"
who did not satisfy the membership requirements. Third, there was no
preexisting relationship between the employer members of LEEA, and
solicitation of new members was based not on appeals to the shared
interests of the organization, but on the sale by HBKW employees of
participation in the Plan. Moreover, the organization was formed by a
commercial organization that hoped to make a profit through the
operation of the Plan. Id. at A728.
14
Therefore, the district court's entry of summary judgment
with respect to the LEEA Plan was proper.
B. The Individual Plans
The Department of Labor holds the view that "if an
employer adopts for its employees a program of benefits
sponsored by a group or association that does not itself
constitute an `employer' or an `employee organization,' such
an employer or employee organization may have established
a separate, single-employer (or single employee
organization) employee benefit plan covered by Title I of
ERISA." DOL Op. No. 96-25A, 1996 WL 634362, at *3.
Western World argues that because the individual
employers in this case established single-employer EWBPs,
ERISA preempts the plaintiff class members' state law
claims.
Although plaintiff-appellees do not explicitly contest the
DOL's position, they argue that it is irrelevant whether the
individual plans constituted employee welfare benefit plans
under ERISA. Appellees are incorrect. As we have
previously indicated, if each employer's individual plan
constituted an employee welfare benefit plan, then"the
class plaintiffs' claims, by operation of the doctrine of
complete preemption, can only be ERISA claims." Gruber v.
HBKW, No. 96-3277, slip op. at 17 (3d Cir. July 18, 1997).
Turning to the merits, we conclude that the district erred
in granting summary judgment. "An employer . . . can
establish an ERISA plan rather easily." Credit Managers
Ass'n, 809 F.2d at 625. An ERISA plan exists if" `from the
surrounding circumstances a reasonable person can
ascertain the intended benefits, a class of beneficiaries, the
source of financing, and procedures for receiving benefits.' "
Deibler, 973 F.2d at 209. We have stated, moreover, that
the crucial factor in determining whether a "plan" has been
established is whether the employer has expressed an
intention to provide benefits on a regular and long-term
basis. Id.
Although the district court correctly observed that an
employer's mere purchase of health insurance for its
employees "is not in and of itself proof that an ERISA plan
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does exist," such a purchase does raise a genuine issue of
material fact as to the existence of an ERISA plan. D. Ct.
Op. at 6. "A number of courts have held that an employer's
payment of insurance premiums, standing alone, is
substantial evidence of the existence of an ERISA plan."
Robinson v. Linomaz, 58 F.3d 365, 368 (8th Cir. 1995)
(citing cases from Fourth, Seventh, Ninth, and Eleventh
Circuits) (emphasis added). Even the district court itself
conceded that a purchase of insurance is "evidence that a
plan does exist." D. Ct. Op. at 6.
The district court found, however, that Western World
presented "no proof that the individual employers even
`purchased' health insurance." D. Ct. Op. at 5-6. Appellee
plaintiff class members, likewise, argue that the individual
employers did not purchase insurance, that LEEA was not
an insurer, and that the employers did not pay premiums
to an insurer. Rather, "[t]hey made contributions to the
LEEA trustee pursuant to the terms of the LEEA self-
funded benefit trust. These contributions were pooled
together in a trustee account and disbursed by the trustee
to pay eligible medical expenses in accordance with the
governing trust documents." Appellee's Br. at 15. This
distinction is irrelevant, however. Since the crucial factor is
"whether the employer has expressed an intention to
provide benefits on a regular and long-term basis," Deibler,
973 F.2d at 209, it does not matter whether the employer
did so by "purchasing insurance" or by subscribing to a
multi-employer trust. See also 29 U.S.C.S 1002 (employer
establishes EWBP "through the purchase of insurance or
otherwise") (emphasis added).
We conclude that Western World has raised a genuine
issue of material fact regarding whether the individual
employer-members of LEEA established employee welfare
benefit plans for ERISA purposes. As Western World
argues, there was evidence that the individual employer
plans satisfied the Deibler test for establishing an ERISA
plan because each employee was given a copy of the
summary plan description which indicated what benefits
were available, which persons were eligible for coverage, the
source of financing, and the procedures for receiving
benefits. Moreover, it is clear that the individual employers
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made contributions to the LEEA Plan on behalf of their
employees. These contributions alone constituted sufficient
evidence of the existence of an ERISA plan to survive
summary judgment.
The Ninth Circuit has explained why summary judgment
is improper in this situation:
Even if an employer does no more than arrange for a
"group-type insurance program," it can establish an
ERISA plan, unless it is a mere advertiser who makes
no contributions on behalf of its employees. This
possibility should be explored in an appropriate
manner before summary judgment is employed. We
must remember that the existence of an ERISA plan is
a question of fact, to be answered in the light of all the
surrounding circumstances from the point of view of a
reasonable person.
Credit Managers Ass'n, 809 F.2d at 625. In this case, the
individual employers arranged for a "group-type insurance
program" by participating in the LEEA Plan. They were not
mere advertisers, but rather made contributions to the Plan
on behalf of their employees. Therefore, we will reverse the
district court's grant of summary judgment on this issue.
CONCLUSION
Because we find that the district court properly
concluded that the LEEA plan was not an employee welfare
benefit plan under ERISA, we will affirm the district court's
grant of summary judgment to the class members on that
issue. However, we hold that the court improperly granted
summary judgment on the issue of whether the individual
employer members of LEEA established single-employer
employee welfare benefit plans under ERISA. Accordingly,
the judgment of the district court will be reversed and the
case remanded for further proceedings consistent with this
opinion.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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