D. Sorenson & Assoc. v. PayFlex Systems, USA , 103 F.3d 632 ( 1996 )


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  •                            ___________
    No. 96-1102
    ___________
    R. Scott Bannister, as Trustee;  *
    Larry W. Borden, as Trustee;     *
    Missouri Pacific Employees'      *
    Health Association Plans;        *
    PayFlex Systems, U.S.A., Inc.;   *
    K. Russell Guethle, as Trustee,  *
    *
    Plaintiffs,            *
    *
    v.                          *
    *
    Darrell Sorenson; Darrell        *
    Sorenson & Associates, Inc.;     *
    Dan Sorenson,                    *
    *
    Defendants.            *
    *
    --------------------             * Appeal from the United States
    * District Court for the District
    Darrell Sorenson,                * of Nebraska.
    *
    Counter Claimant,      *
    *
    Darrell Sorenson & Associates, *
    Inc.,                            *
    *
    Counter Claimant/      *
    Appellant,             *
    *
    v.                          *
    *
    Missouri Pacific Employees'      *
    Health Association Plans,        *
    *
    Counter Defendant;     *
    *
    PayFlex Systems U.S.A., Inc.,    *
    *
    Counter Defendant/     *
    Appellee,              *
    *
    Terry Haney; Dale Hogan,         *
    *
    Counter Defendants.    *
    ___________
    Submitted:   September 13, 1996
    Filed:   December 23, 1996
    ___________
    Before BEAM, HEANEY, and JOHN R. GIBSON, Circuit Judges
    ___________
    BEAM, Circuit Judge.
    Darrell Sorenson & Associates, Inc. (DSA) appeals the district
    court's conclusion, on summary judgment, that DSA's state common
    law claim of breach of contract against PayFlex Systems U.S.A.,
    Inc. (PayFlex) is preempted by the Employment Retirement Security
    Act (ERISA), 29 U.S.C. §§ 1001-1461. We remand for a determination
    of whether the federal courts have subject matter jurisdiction over
    this action and, if so, for further proceedings consistent with
    this opinion.
    I.   BACKGROUND
    The dispute between DSA and PayFlex has its genesis in the
    services these two companies provided to the Missouri Pacific
    Employees' Health Association (MPEHA). All three organizations are
    based in Omaha, Nebraska. MPEHA provides health care benefits to
    active and retired employees of the Union Pacific Corporation.
    PayFlex claims that MPEHA was an employee welfare benefit plan
    under ERISA1 at the time of the events giving rise to this action.
    DSA counters that MPEHA was not an ERISA plan.2
    1
    ERISA defines an "employee welfare benefit plan" as:
    any plan, fund, or program which was heretofore or is
    hereafter 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 or benefits, or benefits in the event of
    sickness, accident, disability, death or unemployment, or
    [other certain benefits or programs].
    19 U.S.C. § 1002(1).
    2
    DSA points to a 1990 advisory letter from the Department of
    Labor to MPEHA stating the Department's position that MPEHA was not
    -2-
    Darrell Sorenson, a former employee of Union Pacific, was
    hired by MPEHA in 1990 and became its president in 1992. In 1991,
    while employed by MPEHA, Sorenson formed DSA and became its
    president and sole shareholder. On July 1, 1991, Sorenson, acting
    on behalf of DSA, entered into a contract with PayFlex. Under the
    DSA-PayFlex contract, DSA agreed to perform certain benefits
    administration tasks incident to services PayFlex provided as a
    third-party administrator for employee health plans.
    On August 6, 1991, PayFlex entered into a contract with MPEHA
    to serve as "plan supervisor" of MPEHA's benefits for Union Pacific
    employees.   Under the PayFlex-MPEHA contract, PayFlex agreed to
    administer claims and prepare payments to health care providers on
    behalf of MPEHA.    Pursuant to the prior DSA-PayFlex agreement,
    PayFlex delegated to DSA certain precertification and catastrophic
    case management services for MPEHA beneficiaries.
    This arrangement did not last long. During 1992, PayFlex and
    MPEHA became dissatisfied with the quality of DSA's services.
    Sorenson (in his capacity as president of MPEHA) documented his
    view that PayFlex had failed to provide adequate services and (as
    president of DSA) contended that DSA had provided adequate
    services.    In August, 1992, MPEHA fired Sorenson's son, Dan
    Sorenson, who had been hired as an MPEHA customer relations clerk
    the preceding April.    Two months later, in October 1992, MPEHA
    fired Darrell Sorenson. A series of letters between Sorenson and
    officials of PayFlex and MPEHA detailed the souring relations among
    the three companies. To complete the collapse of this arrangement,
    PayFlex notified DSA on April 9, 1993, that it was rescinding its
    contract with DSA. PayFlex informed DSA that it was taking this
    action because of what it considered DSA's breach of the covenant
    of good faith and fair dealing, defaults in service, customer
    complaints, and DSA's fiduciary breaches.
    an ERISA plan. PayFlex argues that the Department reversed its
    position in 1994, when it issued an advisory letter superseding the
    prior letter and stating that MPEHA was an ERISA employee welfare
    benefit plan.
    -3-
    Sorenson threatened legal action and requested mediation.
    Instead, MPEHA and PayFlex filed a complaint in federal district
    court, naming Darrell Sorenson, Dan Sorenson, and DSA as
    defendants. MPEHA and PayFlex asserted that the Sorensons and DSA
    had: (1) breached their fiduciary duties under ERISA; and (2)
    engaged in transactions prohibited under ERISA. MPEHA and PayFlex
    sought the return of certain salary payments made by MPEHA to
    Darrell Sorenson and Dan Sorenson and all payments made to DSA by
    PayFlex under their contract.
    DSA and Darrell Sorenson then filed a series of complaints in
    state court.    These complaints asserted that: (1) PayFlex had
    breached its contract with DSA; and (2) that PayFlex, MPEHA, and
    various executives of those organizations had conspired to
    tortiously interfere with Darrell Sorenson's and DSA's contractual
    rights. DSA asserted these same theories as counterclaims in the
    federal action initiated by MPEHA and PayFlex, and the state
    proceedings were stayed pending resolution of the federal case.
    On July 17, 1995, the district court ruled on partial summary
    judgment that ERISA preempted all of DSA's and Sorenson's
    counterclaims.   The court deferred entering judgment, pending
    resolution of PayFlex's and MPEHA's ERISA claims.      In December
    1995, the parties reached a partial settlement. DSA reserved the
    right to appeal the adverse judgment on its breach of contract
    claim against PayFlex.3
    The district court approved the settlement, and made final its
    July summary judgment order.     Despite the numerous claims and
    parties originally involved in this case, on appeal the parties
    present only one issue: does ERISA preempt DSA's state common law
    breach of contract claim against Payflex?
    3
    MPEHA and PayFlex agreed to release all of their ERISA claims
    against DSA and the two Sorensons. DSA and the Sorensons released
    all their claims against MPEHA.         DSA and Darrell Sorenson
    acknowledge that they are no longer pursuing Sorenson's individual
    claims nor DSA's tortious interference claims.
    -4-
    II.   DISCUSSION
    ERISA comprehensively regulates certain employee welfare
    benefits and pension plans. Pilot Life Ins. Co. v. Dedeaux, 
    481 U.S. 41
    , 44 (1987). In order to achieve national uniformity in
    regulation of such plans, ERISA contains a preemption provision4
    that applies to state common law-based claims as well as state
    statutes. Kuhl v. Lincoln Nat'l Health Plan of Kansas City, Inc.,
    
    999 F.2d 298
    , 301 (8th Cir. 1993). ERISA preempts any state law
    that "relates to" an employee benefit plan.    Shaw v. Delta Air
    Lines, Inc., 
    463 U.S. 85
    , 96-97 (1983).    The Supreme Court has
    characterized the scope of ERISA preemption as "deliberately
    expansive." Pilot 
    Life, 481 U.S. at 46
    .
    Not all state law claims that somehow affect a plan are
    preempted. The Supreme Court has noted that "[s]ome state actions
    may affect employee benefit plans in too tenuous, remote, or
    peripheral a manner to warrant a finding that the law ``relates to'
    the plan." 
    Shaw, 463 U.S. at 100
    , n.21. Some actions involving
    ERISA plans are clearly of this sort: "run-of-the-mill state-law
    claims such as unpaid rent, failure to pay creditors, or even torts
    committed by an ERISA plan . . . although obviously affecting and
    involving ERISA plans and their trustees, are not pre-empted by
    ERISA." Mackey v. Lanier Collection Agency & Serv., 
    486 U.S. 825
    ,
    833 (1988).
    Between the poles of those laws and claims that clearly
    "relate to" an ERISA plan and those that are clearly too tenuously
    related are a host of state laws that pose more difficult questions
    4
    29 U.S.C. § 1144(a) provides that:
    Except as provided in subsection (b) of this section, the
    provisions of this subchapter and subchapter III of this
    chapter shall supersede any and all State laws insofar as
    they 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.
    The exceptions to section 1144(a) are not relevant to this case.
    -5-
    of preemption. In Arkansas Blue Cross & Blue Shield v. St. Mary's
    Hosp., Inc., we examined a number of tests that courts have used in
    determining whether a state law "relates to" an ERISA plan. 
    947 F.2d 1341
    , 1344-45 (8th Cir. 1992).     We determined that all of
    these tests were in some degree instructive, and set forth six
    factors for determining ERISA preemption that we distilled from the
    cases: (1) whether the state law negates a plan provision; (2)
    the effect on primary ERISA entities and impact on plan structure;
    (3) the impact on plan administration; (4) the economic impact on
    the plan; (5) whether preemption is consistent with other
    provisions of ERISA; and (6) whether the state law at issue is an
    exercise of traditional state power. 
    Id. at 1345-50.
        While none
    of these factors is itself determinative, they "serve to focus and
    clarify the court's analysis." 
    Id. at 1345.
    DSA asserts that the district court erred in determining that
    DSA's state law contract action "relates to" an ERISA plan and is
    therefore preempted. DSA places great weight on the fact that the
    district court did not cite or specifically analyze the six factors
    discussed in Arkansas Blue Cross & Blue Shield. Rather, the court
    determined that the "state law claims affect relations between
    ERISA entities and, hence, are preempted by ERISA." Bannister v.
    Sorenson, No. 8:CV93-357, slip op. at 6. (D. Neb. filed July 17,
    1995). The court did not use any other factor in analyzing whether
    DSA's claim "relates to" an ERISA plan.
    We have previously applied Arkansas Blue Cross & Blue Shield
    only to issues involving the preemption of generally applicable
    state statutes, not to common law claims.     See, e.g., Boyle v.
    Anderson, 
    68 F.3d 1093
    , 1101-1110 (8th Cir. 1995), cert. denied,
    
    116 S. Ct. 1266
    (1996) (applying Arkansas Blue Cross & Blue Shield
    in determining that ERISA does not preempt a state health provider
    tax); Minnesota Chapter of Associated Builders & Contractors, Inc.
    v. Minnesota Dep't of Labor & Indus., 
    47 F.3d 975
    , 978 (8th Cir.
    1995) (applying Arkansas Blue Cross & Blue Shield to find ERISA
    does not preempt prevailing wage statute). Furthermore, we have
    not invariably relied on Arkansas Blue Cross & Blue Shield
    -6-
    ourselves in deciding ERISA preemption cases. See, e.g., McCallum
    v. Rosen's Diversified, Inc., 
    41 F.3d 1239
    (8th Cir. 1994). While
    helpful, the six factors are not themselves a magic formula for
    determining preemption, and our main task is to determine "the
    totality of the state [law's] impact on the plan." Arkansas Blue
    Cross & Blue 
    Shield, 947 F.2d at 1345
    . Nonetheless, we believe
    that Arkansas Blue Cross & Blue Shield sets forth an analytical
    structure for ERISA preemption claims that facilitates reasoned
    decision-making and appellate review, and is applicable in both the
    common law and statutory environment.
    In this context, then, we note that the remaining dispute does
    not directly involve MPEHA but rather two of its subcontractors.
    The undisputed facts advanced by PayFlex in support of summary
    judgment allow us to consider how, if at all, determination of the
    dispute will impact upon the terms of the plan, its administration
    and its economic viability. Upon application of the Blue Cross &
    Blue Shield factors we conclude that ERISA does not preempt DSA's
    claim. Indeed, the issues appear to relate only peripherally to
    MPEHA and its fundamental obligations to Union Pacific employees.
    We reach this decision only provisionally, however.   This is
    because we are unable to determine whether the MPEHA plan is an
    "ERISA plan" at all, and thus whether the federal courts have
    subject matter jurisdiction over this action. A determination that
    the involved plan is an "ERISA plan" is a requirement for federal
    subject matter jurisdiction premised on ERISA, and if the evidence
    does not show that the plan is an "ERISA plan," the court must
    dismiss the case. Kulinski v. Medtronic Bio-Medicus, Inc., 
    21 F.3d 254
    , 256 (8th Cir. 1994). Furthermore, subject matter jurisdiction
    is a nonwaiveable issue that we must consider on appeal, even if
    the parties have not presented the issue. 
    Id. See also
    Jader v.
    Principal Mut. Life Ins. Co., 
    925 F.2d 1075
    , 1077 (8th Cir. 1991).
    Whether an entity is an "ERISA plan" or administers benefits
    that are subject to ERISA is a mixed question of fact and law.
    
    Kulinski, 21 F.3d at 256
    .     "To qualify as a 'plan, fund, or
    -7-
    program' under ERISA, a reasonable person must be able to
    ``ascertain the intended benefits, a class of beneficiaries, source
    of financing, and procedures for receiving benefits.'" Northwest
    Airlines, Inc. v. Federal Ins. Co., 
    32 F.3d 349
    , 354 (8th Cir.
    1994) (quoting Donovan v. Dillingham, 
    688 F.2d 1367
    , 1373 (11th
    Cir. 1982) (en banc) and Harris v. Arkansas Book Co., 
    794 F.2d 358
    ,
    360 (8th Cir. 1986)). An "ERISA plan" may be involved in a dispute
    even if the entity that supplies the benefits pursuant to a plan is
    not itself a "plan" within ERISA. 
    Donovan, 688 F.2d at 1372
    .
    In the proceedings below, MPEHA and PayFlex asserted that
    MPEHA is an ERISA plan, or alternatively that even if MPEHA itself
    is not an ERISA plan that it manages assets and benefits subject to
    ERISA. DSA, on the other hand, has asserted from the beginning of
    this lawsuit that MPEHA is not an ERISA plan, or was not at the
    time of the events giving rise to its claims. The district court
    made no findings on this issue.       In its Memorandum and Order
    denying Dan Sorenson's motion to dismiss, the district court noted
    that MPEHA and PayFlex "assert that the Association [MPEHA] is an
    employee welfare benefit plan within the purview of ERISA, 29
    U.S.C. § 1002(1)." Bannister v. Sorenson, No. 8:CV93-357, slip op.
    at 1 (D. Neb. filed June 21, 1995). Similarly, in granting summary
    judgment on DSA's and Darrell Sorenson's counterclaims, the court
    stated that "[t]he plaintiffs allege" that MPEHA is an ERISA plan.
    No. 8:CV93-357, slip op. at 2 (D. Neb. filed July 17, 1995).
    However, the trial court never made any findings on this basic
    jurisdictional issue before proceeding with its discussions of the
    substantive merits of these motions. While we tend to believe that
    MPEHA is an ERISA plan, we are unable to resolve from the record
    the underlying factual disputes necessary to establish federal
    jurisdiction.    We conclude, therefore, that upon remand the
    district court must first determine whether MPEHA is, or at the
    time of the events in question was, a "plan, fund, or program"
    within the meaning of ERISA or manages assets and benefits subject
    -8-
    to ERISA. See 
    Jader, 925 F.2d at 1077
    (remand is appropriate when
    jurisdiction premised on ERISA is unclear from record).5
    III. CONCLUSION
    For the foregoing reasons, we vacate the judgment of the
    district court and remand for consideration of subject matter
    jurisdiction.    If the district court finds subject matter
    jurisdiction based upon ERISA, it should then conduct further
    proceedings consistent with this opinion. If MPEHA is determined
    to have been an ERISA entity at relevant times, we note that the
    remaining claim would appear to fall within the trial court's
    supplemental jurisdiction under 28 U.S.C. § 1367, even though MPEHA
    has now been dismissed. Thus, under such circumstances, the court
    is free to use its discretion to exercise jurisdiction or dismiss
    the case as permitted by section 1367(c).
    A true copy.
    Attest:
    CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
    5
    On appeal, both parties have continued to dispute strenuously
    whether Darrell Sorenson, DSA, or PayFlex are ERISA fiduciaries.
    However, this somewhat muddles the issue.      Whether an involved
    party is a fiduciary may be probative, but it is not a strict
    requirement in establishing ERISA preemption. Consolidated Beef
    Indus., Inc. v. New York Life Ins. Co., 
    949 F.2d 960
    , 964 (8th Cir.
    1991).   In any event, whether any of these parties is an ERISA
    fiduciary depends first on whether an ERISA plan is involved at
    all.
    -9-