Alexander v. Provident Life & Acc ( 1998 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ZELLA LEARY ALEXANDER; JAMES
COGGINS; JOHN COGGINS;
CARRIE LEARY HARDY; MICHELLE
LEARY,
Plaintiffs-Appellants,
v.
No. 96-2834
PROVIDENT LIFE & ACCIDENT
INSURANCE COMPANY; A. C.
NEWMAN & COMPANY; STATE
EMPLOYEES ASSOCIATION OF NORTH
CAROLINA, INCORPORATED,
Defendants-Appellees.
Appeal from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
Terence W. Boyle, Chief District Judge.
(CA-95-35-2-BO)
Argued: March 2, 1998
Decided: August 5, 1998
Before ERVIN and NIEMEYER, Circuit Judges, and
BROADWATER, United States District Judge for the
Northern District of West Virginia, sitting by designation.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: John Randolph Ingram, Asheboro, North Carolina, for
Appellants. William Bernard Reilly, BANNAN, GREEN, SMITH,
FRANK & RIMAC, L.L.P., San Francisco, California, for Appellees.
ON BRIEF: Joseph M. Rimac, BANNAN, GREEN, SMITH,
FRANK & RIMAC, L.L.P., San Francisco, California; Benjamin G.
Alford, HENDERSON, BAXTER & ALFORD, P.A., New Bern,
North Carolina, for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
This appeal was taken from a Final Order issued by the United
States District Court for the Eastern District of North Carolina on
November 7, 1996, granting defendants' motion to dismiss with prej-
udice the amended complaint against Provident Life & Accident
Insurance Company ("Provident") and reiterating its prior dismissal of
the claims against A. C. Newman & Company ("Newman") and State
Employees Association of North Carolina, Incorporated ("SEANC").
Zella Leary Alexander filed an appeal on behalf of herself and the
other children and beneficiaries ("Plaintiffs") of an accidental death
group insurance policy issued by Provident and SEANC on the life
of Otley Leary, decedent. The district court's dismissal was based on
the preemption of state law claims by ERISA. We have reviewed the
briefs and record in this case, and we have heard oral argument. We
conclude that the decision of the district court was correct. We there-
fore affirm the judgment for the defendants, not under ERISA pre-
emption principles, but on the merits of the case.
I
On August 1, 1991, Iris Leary, an employee of the State of North
Carolina, enrolled in a Group Insurance Plan ("Plan") offered through
SEANC by Provident. On her insurance enrollment card, Iris Leary
selected the "Member and Family" coverage. On September 14, 1991,
2
Iris Leary's husband, Otley Leary, a retired state employee, enrolled
in the Plan. (J.A. at 158-178.) Otley Leary selected the "Member
Only" coverage on his insurance enrollment card. 1 Otley Leary's Plan
included accidental death insurance coverage for Otley Leary and
named Iris Leary and the couple's children as beneficiaries.2 (J.A. at
158-178.)
Upon Otley Leary's death, Provident paid $80,000 to Iris Leary
under her "Member and Family" policy for his death. Provident
refused to pay benefits in the amount of $125,000 under Otley
Leary's "Member Only" policy, asserting that Otley Leary had
improperly completed his enrollment card. Instead, Provident can-
celed Otley Leary's "Member Only" policy and refunded his premium
payments, in the amount of $33.75, to his estate.
Plaintiffs originally filed this action in state court as a breach of
contract case, alleging that the defendants failed to pay benefits due
them under Otley Leary's "Member Only" policy. Defendants Provi-
dent, Newman, and SEANC removed the action to federal district
court, asserting that the insurance policy in question was covered by
the Employee Retirement Income Security Act of 1974 ("ERISA"),
29 U.S.C.A. § 1001 et seq. Plaintiffs filed a motion to remand the
case to state court that was later denied by the district court. (J.A. at
3, 61-66.) Defendants Newman and SEANC moved to dismiss the
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1 Provident described the "Member Only Plan" coverage as follows:
"You may insure yourself for any of the amounts in the Schedule of Ben-
efits shown above." Provident described the "Family Plan" coverage as
follows: "If you select this plan, you will be insured for the amount you
have chosen as shown in the Schedule of Benefits above, and your
spouse and eligible children will be insured for the following: A) Your
spouse will be insured for 50% of your Principal Sum, if there are no
dependent children; B) Your spouse will be insured for 40% of your
Principal Sum, and each dependent child will be insured for 10% of your
Principal Sum; C) If you do not have a spouse, each dependent child will
be insured for 15% of your Principal Sum." (J.A. at 17-37.)
2 Iris Leary alleged that she relied on a statement by Margaret Tew, an
employee of SEANC and not a party to this action, that it was proper for
her to enroll under the "Member and Family Plan" and for Otley Leary
to enroll under the "Member Only Plan." (J.A. at 119.)
3
complaint for failure to state a claim.3 Provident filed an answer ask-
ing that Plaintiffs be given leave to amend their complaint to state a
claim under ERISA. The district court did not entertain the motion to
dismiss filed on Provident's behalf by Newman and SEANC, who
were not proper parties to the litigation. The district court dismissed
Newman and SEANC with prejudice and ordered Plaintiffs to amend
the complaint to state a claim under ERISA.
Plaintiffs' amended complaint reiterated state law claims of negli-
gence, breach of fiduciary duty, and equitable estoppel rather than
stating a single claim for relief under ERISA.4 In their amended com-
plaint, Plaintiffs again named Newman and SEANC as defendants.
On November 7, 1996 the district court granted Provident's motion
to dismiss the amended complaint with prejudice. The district court
dismissed all counts on the grounds that they were preempted by
ERISA. The court also again dismissed the Plaintiffs' claims against
Newman and SEANC based upon the previous dismissal order.5
II
We review the district court's dismissal of Plaintiffs' amended
complaint under the de novo standard. Becerra v. Dalton, 94 F.3d
145, 148 (4th Cir. 1996) (citing Austin v. Owens-Brockway Glass
Container, Inc., 78 F.3d 875, 877 (4th Cir. 1996)); Lone Star Steak-
house and Saloon, Inc. v. Alpha of Virginia, Inc. , 43 F.3d 922, 929
n.9 (4th Cir. 1995). Dismissal is a drastic measure,"not a sanction to
be invoked lightly." Ballard v. Carlson, 882 F.2d 93, 95 (4th Cir.
1989) (citing Davis v. Williams, 588 F.2d 69, 70 (4th Cir. 1978)).
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3 The motion to dismiss also alternatively requested Plaintiffs to amend
the complaint to state a proper claim under ERISA. (J.A. at 47-52.)
4 Counts I, II, III, and IV of the amended complaint were based on neg-
ligence. Count V was based on either negligence or breach of fiduciary
duty. Count VI was based on the doctrine of equitable estoppel.
5 The district court, in an order dated November 7, 1996, explained that
"[p]laintiffs' claims against Newman and SEANC were dismissed with
prejudice in this Court's Order of November 10, 1995. Plaintiffs are
thereby foreclosed from bringing these claims again. Accordingly, the
claims against Newman and SEANC are again DISMISSED WITH
PREJUDICE." (J.A. at 239) (emphasis in original).
4
"The Federal Rules of Civil Procedure recognize that courts must
have the authority to control litigation before them, and that this
authority includes the power to order dismissal of an action for failure
to comply with court orders. Fed.R.Civ.P. 41(b)." Ballard v. Carlson,
882 F.2d 93, 95 (4th Cir. 1989). Dismissal depends on the "particular
circumstances of the case" and is appropriate after the court reviews
"(i) the degree of personal responsibility of the plaintiff, (ii) the
amount of prejudice caused the defendant, (iii) the existence of a his-
tory of deliberately proceeding in a dilatory fashion, and (iv) the exis-
tence of a sanction less drastic than dismissal." Id. at 95 (citing
Chandler Leasing Corp. v. Lopez, 669 F2d. 919, 920 (4th Cir. 1982)).
III
Plaintiffs contend that they have a valid claim under ERISA
because the Plan qualified as an employee benefit plan under 29
U.S.C.A. § 1002(1) and because the defendants removed their state
action to federal court claiming a federal question under ERISA.
Plaintiffs also claim that it is not necessary to cite to ERISA for a
complaint to allege a cause of action under ERISA. First, Plaintiffs
argue that, because the Plan was governed by ERISA, a fact conceded
by defendants when seeking removal to the district court, defendants
acknowledged the applicability of the laws of ERISA to the present
case, including federal common law. Plaintiffs further assert that
under Nolan v. Aetna Life Ins. Co., 588 F.Supp. 1375 (E.D. Mich.
1984), a failure to allege a cause of action under ERISA is not fatal
to the cause of action. We agree with Plaintiffs' contentions. Even
though the Plaintiffs did not cite to the ERISA statute in their
amended complaint, we will treat the case as an ERISA case and
decide the issues on the merits.
We organized Plaintiffs' contentions on appeal into four categories:
A) Contractual obligations under the ERISA plan; B) Detrimental
reliance on oral representations; C) Improper retention of jurisdiction
by the district court; and D) Deprivation of property without due pro-
cess of law.
A. Contractual obligations under the ERISA plan
In reviewing Provident's denial of coverage in the amount of
$125,000 under Otley Leary's "Member Only" policy, based upon its
5
assertions that Otley Leary had improperly completed his enrollment
card when selecting the "Member Only" coverage, we must interpret
the language of the Plan itself to determine whether the denial of cov-
erage was appropriate. When ERISA governs a contract interpretation
case, "[f]ederal courts interpret ERISA regulated benefit plans with-
out deferring to either party's interpretation, by``using ordinary prin-
ciples of contract law [and] enforcing the plan's plain language in its
ordinary sense.'" Jenkins v. Montgomery Indus., Inc., 77 F.3d 740, 42
(4th Cir. 1996) (quoting Bailey v. Blue Cross & Blue Shield of
Virginia, 67 F.3d 53, 57 (4th Cir. 1995)) (internal citation omitted).
When there is ambiguity, "[w]e have held repeatedly that ambiguous
language must be construed against the drafter." Bailey, 67 F.3d at 58(quoting Doe v. Group Hospitalization & Medical Services, 3 F.3d
80, 89 (4th Cir. 1993); Glocker v. W.R. Grace & Co., 974 F.2d 540,
544 (4th Cir. 1992)). In determining as a matter of law that a contract
is ambiguous, we "may examine evidence extrinsic to the contract."
Bailey, 67 F.3d at 58.
Most of Plaintiffs' claims in the amended complaint derive from
the interpretation of language in the insurance enrollment card under
the Plan. This language states as follows:
Please Note: If husband and wife are both members, each
may select the Member Only Plan or one may select the
Family Plan (which includes coverage to spouse and chil-
dren). The named insured will be beneficiary for spouse
coverage and for dependents coverage.
(J.A. at 17.)
Plaintiffs argue in their appellate brief that, because this language
is susceptible to multiple meanings, the language is ambiguous and
should be construed against SEANC and Provident and in favor of the
Plaintiffs. We disagree. The Plan provides unambiguous limitations
that prohibit duplicate coverage for family members. In a letter dated
August 20, 1992, addressed to Iris Leary, Charles S. Beach ("Beach"),
Newman's Executive Vice President, stated that the"purpose of the
notice on the Enrollment Card is to avoid multiple coverages for the
same individual under one policy." (J.A. at 181.) In a second letter
also dated August 20, 1992, addressed to Zella Leary Alexander,
6
Beach explained that because Iris Leary selected the"Member and
Family Plan," Otley Leary was not eligible for coverage under his
"Member Only" policy, as he already had coverage under Iris Leary's
policy as a dependent. (J.A. at 182.) Beach referred to the language
of the Plan's enrollment card and the Plan's brochure to reiterate
Otley Leary's ineligibility for double coverage as an employee under
his "Member Only" coverage and as a dependent under Iris Leary's
"Member and Family" coverage.
Section III of the Plan's brochure, titled "Eligibility and Termina-
tion Coverage," states, in relevant parts: "The term Dependent means
(a) your spouse . . . . The term Dependent will not include any person
who is eligible for coverage as an Employee." (J.A. at 163.) It is
undisputed that when Otley Leary enrolled in the"Member Only"
policy on September 14, 1991, he was already a dependent under Iris
Leary's "Member and Family" policy. (J.A. at 158 and 179).6 There-
fore, Otley Leary could not be eligible for coverage as a retired
employee under his "Member Only" policy because he was already
insured as a dependent under Iris Leary's "Member and Family" pol-
icy and because the Plan clearly prohibits duplicate coverage for fam-
ily members. Since Otley Leary's "Member Only" coverage was
invalid under the Plan's limitations, Newman, as the Plan administra-
tor for Provident, acted correctly when it canceled Otley Leary's cov-
erage under the "Member Only" policy and returned the premiums
deducted in error to Otley Leary's estate. (J.A. at 181, 183.)
B. Detrimental reliance on oral representations
Plaintiffs next contend that Margaret Tew ("Tew"), an employee of
SEANC in charge of insurance, made oral representations that con-
flicted with the written terms of the Plan. (J.A. at 119.) Plaintiffs
allege that Iris Leary detrimentally relied upon the representations of
Tew made on November 12, 1991, that the "Member Only" coverage
for which Otley Leary enrolled was authorized under the Plan. Plain-
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6 On August 1, 1991, Iris Leary enrolled in the Plan as an employee of
the state of North Carolina. As a retired employee of the state of North
Carolina, Otley Leary was eligible to enroll in the Plan, which allows
active and retired dues-paying members of SEANC to enroll. (J.A. at
161.)
7
tiffs further assert that this reliance amounted to equitable estoppel
and that Tew's oral assurances that both "Member Only" and "Mem-
ber and Family" coverages were allowed under the Plan constitute an
estoppel to any denial of coverage. As a consequence, Plaintiffs argue
that the defendants should be held liable under the policy for which
Plaintiffs were beneficiaries. Plaintiffs maintain that the principles of
the federal common law of equitable estoppel create an avenue of
recovery for plaintiffs in ERISA cases. Plaintiffs rely on our holding
in Elmore v. Cone Mills Corp., 23 F.3d 855 (4th Cir. 1994), that is
inapposite to the present controversy. In Elmore ,
[T]his court, sitting en banc, addressed the question of
whether estoppel principles could be used to bind a plan
fiduciary to oral modifications made before terms of the
plan were written down and became binding. The plan at
issue in Elmore was adopted subsequent to the contract that
formed the basis for the plaintiff's estoppel claim. Thus, the
alleged beneficiaries in Elmore did not seek to alter a pre-
existing ERISA plan, they merely asked that a contract
entered into prior to the ERISA plan's adoption be given
binding effect. . . . In Coleman v. Nationwide Life Ins. Co.,
we held that estoppel principles cannot be used to effect a
modification of an existing ERISA benefit plan. In such a
case, adoption of an estoppel theory "would require this
court to rewrite the contract of insurance."
HealthSouth Rehabilitation Hosp. v. American Nat'l Red Cross, 101
F.3d 1005, 1010 (4th Cir. 1996) (emphasis added, internal citations
omitted).
Thus, Elmore is distinguishable on its facts from the present con-
troversy. Here, Plaintiffs wish to apply estoppel principles to oral rep-
resentations Tew allegedly made on November 12, 1991 to modify a
pre-existing ERISA Plan that was entered on September 1, 1991. (J.A.
at 119, 158.) Unlike Elmore, where plaintiffs "did not seek to alter a
pre-existing ERISA plan [but] merely asked that a contract entered
prior to the ERISA plan's adoption be given binding effect," Plaintiffs
seek to modify an unambiguous pre-existing Plan. HealthSouth, 101
F.3d at 1010. Because the en banc panel was evenly divided, "Elmore
carries no precedental weight." Id. at 1010. Therefore, Plaintiffs' reli-
8
ance on Elmore is misplaced. Thus, we reject Plaintiffs' claim of
equitable estoppel based on Tew's subsequent oral representations
that conflicted with the written terms of the Plan.
C. Improper retention of jurisdiction by the district court
Plaintiffs next allege that the district court erred by failing to
remand the matter to state court. Under Section 502(e) of ERISA, 29
U.S.C.A. § 1132(e), state and federal courts have concurrent jurisdic-
tion over individual claims for benefits under an ERISA plan, or to
enforce rights under an ERISA plan. Federal district courts have
exclusive jurisdiction over all other claims authorized by Section 502
of ERISA, 29 U.S.C.A. § 1132(e)(1). Therefore, the district court
properly retained jurisdiction. In addition, claims filed in state court
can be removed to federal court any time the state law cause of action
is preempted by ERISA. Metropolitan Life Ins. Co. v. Taylor, 481
U.S. 58 (1987). Finally, even though Plaintiffs had the option of filing
an ERISA action in state court, the Defendants had an absolute right
to remove such action to federal court. Id.D. Deprivation of property without due process of law
Plaintiffs raise an additional argument on appeal, that they were
deprived of property interest without due process of law. Plaintiffs did
not raise any constitutional issue before the district court. Because no
showing of exceptional circumstances was made, we decline to con-
sider this issue on appeal. See United States v. One 1971 Mercedes
Benz 2-Door Coupe, 542 F.2d 912 (4th Cir. 1976); United States v.
Chesapeake & Ohio Ry. Co., 215 F.2d 213 (4th Cir. 1954).
IV
Accordingly, this Court concludes that the district court did not err
in finding that Plaintiffs were not entitled to accidental death benefits
under Otley Leary's "Member Only" Plan offered through SEANC by
Provident. For the foregoing reasons, we affirm the judgment of the
district court.
AFFIRMED
9