Butero v. Royal MacCabees Life Insurance

Annette BUTERO, Simply Fashion Stores Inc., et al., Plaintiffs-Appellants,
v.
ROYAL MACCABEES LIFE INSURANCE COMPANY, a corporation, Anita Lawson, Defendants-
Appellees.
No. 97-6536.
United States Court of Appeals,
Eleventh Circuit.
May 10, 1999.
Appeal from the United States District Court for the Northern District of Alabama. (No. CV 97-L-328-S),
Seybourn H. Lynne, Judge.
Before COX and BIRCH, Circuit Judges, and GODBOLD, Senior Circuit Judge.
COX, Circuit Judge:
Annette Butero, Simply Fashion Stores, Ltd., and its general partner Simply Fashion Stores, Inc.
appeal two district court orders: one refusing to remand to state court their claims against Royal Maccabees
Life Insurance Company and its employee Anita Lawson, and another dismissing their complaint in its
entirety. We affirm.
I. BACKGROUND
Simply Fashion provides its employees a cafeteria plan that makes available health, life, and
long-term disability insurance, as well as a 401(k) retirement savings plan. In early 1996, Simply Fashion
learned that its life-insurance carrier would cancel the group policy that Simply Fashion offered to its
employees. Simply Fashion's human resource director met with an independent insurance agent, who notified
Simply Fashion that Royal Maccabees would provide Simply Fashion a replacement policy at the same
premium as the prior insurer. According to the agent, the replacement policy would have a portability feature.
Based on this information, Simply Fashion issued a memorandum to its full-time employees. The
memo announced that "our life insurance coverage" would be provided by a new carrier starting on a certain
date, and that employees insured by the old carrier would be automatically "enrolled." (Supp. R.-25 Ex. 6.)
Employees would pay the entire premium by payroll deduction, as they had in the past. Full-time employees
with 90 days' tenure who were not enrolled under the old policy were invited to enroll. The attached "Special
Open Enrollment" form under the "Simply Fashion Stores, Ltd. Cafeteria Plan" required employees to
acknowledge that they had received a "Summary Plan Description." (Id.) That summary plan description,
also attached to the memo, identified the benefits provided under the life-insurance policy ($50,000) and who
was eligible (full-time employees with 90 days' tenure). The enrollment form also warned employees that
"[t]he Plan Administrator may reduce or cancel my compensation reduction or otherwise modify this
agreement in the event he believes it advisable in order to satisfy certain provisions of the Internal Revenue
Code." (Id. Ex. 5.) The form contained a signature space at the bottom to indicate that the enrollment was
"[a]ccepted and agreed to by the Company's Authorized Representative." (Id.)
As it turned out, Royal Maccabees would not provide a portable policy to Simply Fashion at the same
premium as the old policy. Despite its representations to its employees, Simply Fashion opted for a cheaper,
nonportable policy. Although, according to the insurance agent and the Complaint, "other insurance
companies offering coverage could have been purchased by Simply Fashions," (Supp. R.-25 Ex. 4), Simply
Fashion stayed with Royal Maccabees.
The Royal Maccabees policy that Simply Fashion procured was one that was issued to Simply
Fashion, and not to Simply Fashion's employees. Royal Maccabees advised Simply Fashion on
administration of the policy and on premium billing. Simply Fashion was also responsible for providing
Royal Maccabees with documentation supporting a claim. Simply Fashion began collecting premiums from
its employees, and it remitted two premium checks to Royal Maccabees.
After the policy's putative effective date, Royal Maccabees asked Simply Fashion to provide a
"statement from the company that there had been no deaths or disabilities since the effective date." (Supp.
R.-25 Ex. 4.) Over a month later, Simply Fashion did so, after a fashion: it informed Royal Maccabees that
from the effective date of the policy to the day before the letter's date, "we have had no death claims." (Id.
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Ex. 7.) The letter said nothing about disability. This omission was arguably important, because a month
earlier one of Simply Fashion's warehouse managers, Benedict Butero, had taken leave due to a severe illness.
Butero had been automatically enrolled for the insurance because he had elected to purchase the life insurance
that Simply Fashion had previously offered. The day after Simply Fashion informed Royal Maccabees that
there were no outstanding death claims, Butero died.
The day Butero died, Royal Maccabees sent Simply Fashion a letter stating that Royal Maccabees
was "declin[ing] your request for coverage" and that "[n]o contract of insurance exists." (Supp. R.-25 Ex.
8.) The letter was accompanied by a check reimbursing Simply Fashion for the paid premiums. The letter
did not explain why Royal Maccabees rejected the policy application, although Royal Maccabees now argues
that it was because Simply Fashion provided no information about disabled employees.
A few days later, Annette Butero, Benedict's wife, made a claim for benefits through Simply Fashion.
The claim was denied. This lawsuit followed.
Butero, joined by Simply Fashion, sued in state court, naming as defendants Royal Maccabees, its
employee Anita Lawson, and the independent insurance agent. The complaint—a classic "shotgun"
pleading—joins every defendant in every count, and it seeks unspecified compensatory damages for breach
of contract, bad faith refusal to pay, and fraud in the inducement; it also includes three counts alleging fraud
that are apparently duplicative. The defendants removed the action to federal court, asserting that the
insurance policy was part of a plan governed by the Employee Retirement Income Security Act of 1974.
The plaintiffs then moved to remand, arguing that the insurance policy was not part of an ERISA
plan, and in the alternative that the claims against the insurance agent were not preempted by ERISA. The
court apparently rejected the first argument, but agreed with the second: the claims against the independent
insurance agent were severed and remanded. The court otherwise denied the motion to remand.
The remaining defendants, Royal Maccabees and Anita Lawson, then moved to strike the plaintiffs'
state-law claims. Royal Maccabees argued that ERISA governed the insurance policy, and that all the
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remaining state-law claims were preempted. The district court agreed. It issued a one-page order dismissing
the complaint without prejudice to the right to refile a complaint stating claims under ERISA.
The plaintiffs appeal and challenge the district court's orders on two grounds. First, they argue that
the insurance policy is not part of an ERISA plan because it is anchored in a regulatory safe harbor from
ERISA for certain "group or group-type insurance program[s]." 29 C.F.R. § 2510.3-1(j). Second, they
contend that even if the policy is part of an ERISA plan, their causes of action are not preempted under the
principles enunciated in Morstein v. National Ins. Servs., Inc., 93 F.3d 715, 722 (11th Cir.1996) (en banc).
We review de novo both the denial of the motion to remand and the dismissal. See Whitt v. Sherman Int'l
Corp., 147 F.3d 1325, 1329 (11th Cir.1998); Hall v. Blue Cross/Blue Shield, 134 F.3d 1063, 1064-65 (11th
Cir.1998).
II. DISCUSSION
Reviewing the two district court orders at issue here requires juggling two different kinds of ERISA
preemption. The first kind is what this circuit has called complete preemption or "super preemption." Whitt
v. Sherman Int'l Corp., 147 F.3d 1325, 1329 (11th Cir.1998). Superpreemption arises from Congress's
creation of a comprehensive remedial scheme in 29 U.S.C. § 1132 for loss or denial of employee benefits.
See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64, 107 S.Ct. 1542, 1546, 95 L.Ed.2d 55 (1987).
When Congress comprehensively occupies a field of law, "any civil complaint raising this select group of
claims is necessarily federal in character" and thus furnishes subject-matter jurisdiction under 28 U.S.C. §
1331. Id. Therefore, federal courts have subject-matter jurisdiction over state-law claims that have been
superpreempted, and defendants may remove to federal court those actions that contain such claims. See id.There being no other basis for subject-matter jurisdiction here, whether the district court properly denied the
motion to remand for lack of removal jurisdiction thus turns on whether some or all of the state-law claims
are superpreempted.
4
The second kind of preemption we will call "defensive." It originates in ERISA's express preemption
provision, 29 U.S.C. § 1144(a).1 Defensive preemption provides only an affirmative defense to certain
state-law claims. See id. As an affirmative defense, defensive preemption does not furnish federal
subject-matter jurisdiction under 28 U.S.C. § 1331; "a cause of action arises under federal law only when
the plaintiff's well-pleaded complaint raises issues of federal law." Id. at 63, 107 S.Ct. at 1546. On the other
hand, defensive preemption does require dismissal of state-law claims. See id. Reviewing the district court's
dismissal of the complaint therefore raises only the question of whether the state-law claims were subject to
defensive preemption.
We start with the superpreemption issue because, for the reasons explained above, it ultimately
decides the existence of federal subject-matter jurisdiction. As it turns out, some claims are superpreempted,
and others are not. Here's the rule: ERISA superpreemption exists only when the "plaintiff is seeking relief
that is available under 29 U.S.C. § 1132(a)." Whitt, 147 F.3d at 1330. Regardless of the merits of the
plaintiff's actual claims (recast as ERISA claims), relief is available, and there is complete preemption, when
four elements are satisfied. First, there must be a relevant ERISA plan. See id.; Kemp v. International
Business Machs. Corp., 109 F.3d 708, 713 (11th Cir.1997). Second, the plaintiff must have standing to sue
under that plan. See Engelhardt v. Paul Revere Life Ins. Co., 139 F.3d 1346, 1350 n. 3 (11th Cir.1998).
Third, the defendant must be an ERISA entity. See id.; Franklin v. QHG of Gadsden, Inc., 127 F.3d 1024,
1029 (11th Cir.1997); see also Morstein v. National Ins. Servs., Inc., 93 F.3d 715, 722 (11th Cir.1996) (en
banc) (no preemption at all—not even defensive preemption—when the defendant is "a non-ERISA entity"
and the claims do not "affect relations among principal ERISA entities as such"). Finally, the complaint must
seek compensatory relief akin to that available under § 1132(a); often this will be a claim for benefits due
under a plan. See Engelhardt, 139 F.3d at 1354; Franklin, 127 F.3d at 1029.
1
"[T]he 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." 29 U.S.C. § 1144(a).
5
The claims in this complaint that are not superpreempted are those brought by Simply Fashion. The
second element, standing to sue under ERISA, is missing: Simply Fashion's role on ERISA's stage is
"employer." See 29 U.S.C. § 1002(5). Section 1132(a) grants employers no cause of action for damages.
See 29 U.S.C. § 1132(a). Simply Fashion thus has no standing to assert a statutory cause of action. See
Engelhardt, 139 F.3d at 1351. Hence, Simply Fashion's claims are not superpreempted.
Butero's claims, on the other hand, are superpreempted. To begin with, the second, third, and fourth
elements are plainly present. First, if the life insurance policy is part of an ERISA plan (more on that below),
then she is a potential beneficiary. See 29 U.S.C. § 1002(8) (" '[B]eneficiary' means a person designated by
a participant ... who is or may become entitled to a benefit thereunder."). She thus has standing to assert a
variety of claims under § 1132(a). See 29 U.S.C. § 1132(a)(1), (2), (3), (4); Engelhardt, 139 F.3d at 1351.
Second, if we have an ERISA plan, Royal Maccabees2 is an ERISA entity. It could "control ... the payment
of benefits" and the "determination of [Butero's] rights" under any plan we may have here.3 Morstein, 93 F.3d
at 723. Third, the damages apparently sought here are available under § 1132: we have held that claims
against an insurer for fraud and fraud in the inducement to purchase a policy are in essence claims "to recover
benefits due to [the beneficiary] under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B); see Engelhardt,
139 F.3d at 1353 (fraud in the inducement is claim for benefits under § 1132(a)(1)); Franklin, 127 F.3d at
2
As we mentioned earlier, the plaintiffs sued both Royal Maccabees and one of its employees, Anita
Lawson. Arguably, the claims against Anita Lawson would not be superpreempted because of element
three of our four-part test: Lawson is probably not an ERISA entity. We have found no authority on this
precise question, and the parties have cited none—the parties in fact ignore that Lawson has been sued at
all. (There are cases concerning independent insurance agents, but not mere employees of insurance
companies.) But we decline to hold that claims against an ERISA entity's employee escape the
preemption that would doom state-law claims against the entity itself. Such a holding would reduce all of
ERISA's preemptive scope to nothing but a trap for an artless pleader.
3
We note that Franklin suggests in dicta (since the issue was not before it) that an insurance company
allegedly obligated to pay benefits under a plan is not considered an ERISA entity if the complaint alleges
pre-policy fraud. See Franklin, 127 F.3d at 1029. No one has argued that this dictum governs this case,
and we doubt that ERISA status can be so cleanly switched on and off. After all, we aren't here today
solely because of any fraud; we're here because Butero thinks she is due benefits under an ERISA plan.
The benefits were denied by the insurer in its status as an ERISA entity.
6
1029 (claim based on alleged misrepresentation that certain coverage would exist is claim for benefits). And
the claims here of bad faith refusal to pay and breach of contract both pursue the same relief as the fraud
claims—payment of the life insurance benefit. Cf. Engelhardt, 139 F.3d at 1354. We therefore conclude that
all of Butero's claims are properly recast as claims for benefits due under any plan.
That leaves only the first element to discuss—whether there is a relevant ERISA plan. The
centerpiece of the plaintiffs' argument on this point is a regulatory safe harbor from "plan-ness," 29 C.F.R.
§ 2510.3-1(j), and it is there that we start. The regulation excepts from the definition of "employee welfare
benefit plan" certain "group or group-type insurance program[s]" "offered by an insurer to employees." 29
C.F.R. § 2510.3-1(j). For the program to qualify for the exception, four elements must be satisfied:
(1) No contributions are made by an employer or employee organization;
(2) Participation [in] the program is completely voluntary for employees ...;
(3) The sole functions of the employer ... with respect to the program are, without endorsing the
program, to permit the insurer to publicize the program to employees or members, to collect
premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and
(4) The employer ... receives no consideration in the form of cash or otherwise in connection with
the program....
Id. There is no dispute here that elements (1), (2), and (4) are fulfilled. Element (3) is in dispute, but it is hard
to see why. The regulation explicitly obliges the employer who seeks its safe harbor to refrain from any
functions other than permitting the insurer to publicize the program and collecting premiums. Simply Fashion
did a lot more. It picked the insurer;4 it decided on key terms, such as portability and the amount of
coverage; it deemed certain employees ineligible to participate; it incorporated the policy terms into the
self-described summary plan description for its cafeteria plan; and it retained the power to alter compensation
reduction for tax purposes. So the safe harbor is barred. But that does not necessarily mean that the insurance
policy is part of an ERISA plan. See, e.g., Brundage-Peterson v. Compcare Health Servs. Ins. Corp., 877
4
We do not hold here, because the question is not presented, that picking an insurer by itself could
move an employer out of the safe harbor.
7
F.2d 509, 511 (7th Cir.1989). So we turn next to the high-seas definition of an "employee welfare benefit
plan" to see if the insurance policy here qualifies.
For present purposes, an "employee welfare benefit plan" governed by ERISA is any (1) "plan, fund
or program," (2) established or maintained (3) by an employer, (4) to provide beneficiaries (5) death benefits
through an insurance policy. 29 U.S.C. § 1002(1); see also Donovan v. Dillingham, 688 F.2d 1367, 1371
(11th Cir.1982) (en banc) (breaking up the statutory definition into elements). Elements (3), (4) and (5) are
undisputedly satisfied. We conclude that the other two elements are satisfied, as well.
First, we have a "plan." An ERISA plan exists whenever there are "intended benefits, intended
beneficiaries, a source of financing, and a procedure to apply for and collect benefits." Donovan, 688 F.2d
at 1372. The intended benefits here were those paid if an employee dies. The intended beneficiaries were
those named by the employee. Financing was provided by the employee through payroll deductions. And
a "reasonable person" could figure out procedures for receiving benefits (certainly Butero did here, for Simply
Fashion filed an insurance claim on her behalf). See id. at 1373.
Second, the plan was "established or maintained." A plan is "established" when there has been some
degree of implementation by the employer going beyond a mere intent to confer a benefit. See Whitt, 147
F.3d at 1331; Donovan, 688 F.2d at 1373 ("Acts or events that record, exemplify or implement the decision
will be direct or circumstantial evidence that the decision has become reality—e.g., financing or arranging
to finance or fund the intended benefits, establishing a procedure for disbursing benefits, assuring employees
that the plan or program exists—but it is the reality of a plan ... and not the decision to extend certain benefits
that is determinative."). Such implementation happened here. Simply Fashion consulted an insurance agent,
selected the terms of the group policy it wished to purchase for its employees, completed an application form
for the policy, solicited enrollments from its employees, collected money through payroll deductions, and
remitted premium checks to Royal Maccabees. These actions on Simply Fashion's part take the
implementation of its plan sufficiently beyond that in cases where no establishment occurred. Compare
8
Whitt, 147 F.3d at 1331 (asserted "plan" was no more than several draft plans), with Kenney v. Roland Parson
Contracting Corp., 28 F.3d 1254, 1258 (D.C.Cir.1994) ("plan" "established" when employer represented to
employees that contributions were being made to pension fund, and plan documents were prepared, even
though no contributions were ever made).
One might argue, on the other hand, that Royal Maccabees' retroactive refusal to issue the policy
precludes any plan from being "established." We reject this argument for two reasons.5 First, whether a plan
is "established" is determined by the employer's conduct, not that of any other ERISA entity. The statutory
definition makes it clear that only an employer can establish an "employee welfare benefit plan," see 29
U.S.C. § 1002(1), and caselaw glosses on the definition have likewise focused on the employer's actions. See
Kenney, 28 F.3d at 1258 (describing seven-factor test for establishment, including: (1) the employer's
representations in internally distributed documents; (2) the employer's oral representations; (3) the
employer's establishment of a fund to pay benefits; (4) actual payment of benefits; (5) the employer's
deliberate failure to correct known perceptions of a plan's existence; (6) the reasonable understanding of
employees; and (7) the employer's intent); Henglein v. Informal Plan for Plant Shutdown Benefits for
Salaried Employees, 974 F.2d 391, 400 (3d Cir.1992); see also Donovan, 688 F.2d at 1367. Second, the
facts-and-circumstances standard for whether a plan has been "established" has many factors other than
payment of actual benefits. Thus, the facts that an employer represented to employees that life insurance was
available, took payroll deductions to pay premiums, in fact paid premiums, and obviously intended for life
insurance to take effect can trump the underwriter's rejection of an application nearly two months after
coverage putatively began. For these reasons, we conclude that the insurance policy was part of an
5
Our explicit conclusion here was reached implicitly by the panel in Willett v. Blue Cross & Blue
Shield, 953 F.2d 1335 (11th Cir.1992). The Willett plaintiffs were putative beneficiaries of a health
insurance policy that the insurer retroactively canceled as of its effective date, thus leaving the plaintiffs
uncovered for care they had received during the time the policy had purported to be in effect. The
plaintiffs sued the insurer for benefits. Not only did this court not hold that the ineffectiveness of the
policy took it outside ERISA; it also held that the plaintiffs had a potential claim against the insurer
notwithstanding the cancellation of the policy. See id. at 1342-43.
9
"employee welfare benefit plan" governed by ERISA. That means that we have a relevant ERISA plan, and
that all the elements of superpreemption are satisfied for Butero's claims.
So we conclude that all of Simply Fashion's claims escape superpreemption, while Butero's claims
fall to it. The upshot of this conclusion is that the district court properly denied the motion to remand.
Removal jurisdiction exists over the action by virtue of the superpreemption of Butero's claims. Because
Simply Fashion's claims were joined with superpreempted (and therefore removable) claims, furthermore,
the district court could properly retain jurisdiction over them. See 28 U.S.C. § 1441(c); see In re City of
Mobile, 75 F.3d 605, 608 (11th Cir.1996). The question of the court's jurisdiction thus resolved, we turn to
whether the district court properly dismissed the plaintiffs' claims as defensively preempted.
Defensive preemption defeats claims that seek relief under state-law causes of action that "relate to"
an ERISA plan. 29 U.S.C. § 1144(a); Lordmann Enters. v. Equicor, Inc., 32 F.3d 1529, 1532 (11th
Cir.1994). It has long been settled that claims such as Simply Fashion's "relate to" an ERISA plan. See Pilot
Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47-48, 107 S.Ct. 1549, 1553, 95 L.Ed.2d 39 (1987) (state-law bad
faith, breach of contract, and fraud claims are all preempted under § 1144(a)). Butero's claims are defensively
preempted, as well: If the plaintiff's claims are superpreempted, then they are also defensively preempted.
See McClelland v. Gronwaldt, 155 F.3d 507, 517 (5th Cir.1998). The district court thus properly dismissed
both plaintiffs' claims with leave to refile.
III. CONCLUSION
For the foregoing reasons, we affirm the district court's orders.
AFFIRMED.
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