Engelhardt v. Paul Revere Life Ins. Co.

• Decision Date: 27 April 1998
• Docket Number: No. 96-7170,96-7170
• Citation: 139 F.3d 1346
• Parties: 11 Fla. L. Weekly Fed. C 1315 Miller B. ENGELHARDT, M.D., an individual, Plaintiff-Appellee, v. The PAUL REVERE LIFE INSURANCE COMPANY, of Worcester, Massachusetts, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1346

139 F.3d 1346

11 Fla. L. Weekly Fed. C 1315

Miller B. ENGELHARDT, M.D., an individual, Plaintiff-Appellee, v. The PAUL REVERE LIFE INSURANCE COMPANY, of Worcester Massachusetts, Defendant-Appellant.

No. 96-7170.

United States Court of Appeals Eleventh Circuit.

April 27, 1998.

Bert S. Nettles, Mark Hess, London & Yancy, Birmingham, AL, Mark E Schmidtke, J.R. Ebenstein Consultants, Valparaiso, IN, for Defendant-Appellant.

Dennis R. Bailey, Rushton, Stakely, Johnston & Garrett, Montgomery, AL, for Plaintiff-Appellee.

Appeal from the United States District Court for the Middle District of Alabama.

Before TJOFLAT and HULL, Circuit Judges, and KRAVITCH, Senior Circuit Judge.

HULL, Circuit Judge:

Defendant Paul Revere Life Insurance Company appeals from the district court's order granting Plaintiff Miller B. Engelhardt's motion to dismiss his ERISA claim and motion to remand his remaining fraud claim to state court. After review, we reverse.

I. FACTS

A. Paul Revere's Policy

Plaintiff Miller B. Engelhardt ("Engelhardt") was one of four surgeons who formed Montgomery Orthopaedic Surgeons, P.C. ("Montgomery Orthopaedic"). Montgomery Orthopaedic applied for membership in a multi-employer trust that provided group disability insurance coverage to the eligible employees of the participating employers.

Defendant Paul Revere Life Insurance Company ("Paul Revere") established the trust and issued a group insurance policy to the trust. The participating employers paid premiums to the trust on behalf of their eligible employees, and the trust in turn paid the premiums to Paul Revere. Paul Revere approved Montgomery Orthopaedic's application for membership in the trust. Montgomery Orthopaedic became a participating employer effective July 1, 1993.

To become eligible for coverage under Paul Revere's group policy, each of Montgomery Orthopaedic's employees was required to submit an individual application that provided proof of insurability. The group policy provided that Paul Revere retained the right to deny eligibility to employees who did not provide satisfactory proof of insurability.

Plaintiff Engelhardt submitted his individual application for coverage as an employee of Montgomery Orthopaedic. In his application, Engelhardt disclosed that he suffered from glaucoma. After reviewing this disclosure, Paul Revere required Engelhardt to sign an amendment to his application that excluded benefits for disability related to "either or both eyes."

Initially, Engelhardt objected to the breadth of the exclusion, arguing that the exclusion should be limited to glaucoma-related problems. Stan Montgomery, the independent insurance agent who sold Montgomery Orthopaedic the policy, allegedly assured Engelhardt that the amendment would be construed to exclude coverage for glaucoma-related problems only. On August 17, 1993, Paul Revere sent Engelhardt a letter further assuring him that the exclusion would be applied "with common sense and reason" and would not be used to deny benefits for, inter alia, accidental "lacerations, puncture wounds, or burns to the eyes, unrelated to treatment or surgery for an eye condition." (R.2-14, ex. 1-C.) Relying on these assurances, Engelhardt signed the amendment on October 25, 1993. His coverage under the policy was made retroactive to July 1, 1993.

In October 1995, Engelhardt suffered a detached retina, unrelated to his glaucoma, and was left unable to perform surgery. Engelhardt filed a claim for disability benefits. Under the terms of the policy, Paul Revere had the exclusive right to determine eligibility for benefits. Paul Revere denied the claim based on the eye exclusion in the amendment to Engelhardt's application for coverage.

Engelhardt appealed the denial, arguing that he had been assured that the exclusion would apply only to pre-existing, glaucoma-related conditions. Paul Revere acknowledged the appeal and invited Engelhardt to provide additional information, such as the name of the person who made the assurance, or documentation to substantiate Engelhardt's claim. Engelhardt provided no further information to Paul Revere; rather, he filed suit. Paul Revere then affirmed the denial of Engelhardt's claim for benefits.

B. Removal To Federal Court

Engelhardt filed suit in Alabama state court alleging that he was fraudulently induced to enter into an insurance contract with Paul Revere. Paul Revere removed Engelhardt's action to federal court contending that Engelhardt's claim was preempted by the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. ("ERISA"). Once in federal court, Engelhardt amended his complaint to add a Count II for wrongful denial of benefits under ERISA.

After amending his complaint, Engelhardt filed a motion to remand his fraud claim in Count I. Engelhardt contended that he was neither a participant nor beneficiary of the plan and that he had no standing to sue under ERISA. Engelhardt argued that ERISA did not preempt his fraud claim and that removal of his fraud claim was improper.

C. Engelhardt's Acceptance Of ERISA Benefits

During discovery, a memorandum written by a Paul Revere sales representative was produced by Stan Montgomery. The memorandum supported Engelhardt's contention that he had been assured that the policy's eye exclusion applied only to glaucoma-related problems. After that memorandum surfaced, Paul Revere tendered and Engelhardt accepted past disability benefits due under the policy, plus interest. Paul Revere also offered to pay future benefits and "discuss the possible reimbursement of reasonable attorney fees and costs incurred by [Engelhardt], pursuant to ERISA." (Paul Revere's Br. Supp. Mot. Summ. J., at 5.) Paul Revere's payment to Engelhardt was not made pursuant to any settlement agreement, but simply represented Paul Revere's reconsideration of its prior denial of Engelhardt's claim for benefits.

D. Motions For Summary Judgment, Dismissal, And Remand

After Engelhardt accepted Paul Revere's payment of the benefits, Paul Revere filed a motion for summary judgment on both counts of Engelhardt's complaint. Paul Revere's motion argued that Engelhardt's fraud claim in Count I was preempted and that Engelhardt had received all the relief available under ERISA in Count II. Engelhardt never responded to the motion.

While the motion for summary judgment was pending, the district court directed Engelhardt to file a motion to dismiss his ERISA claim in Count II. Engelhardt did so, but his motion requested that the dismissal be "with leave to proceed to negotiate with Paul Revere the issue of interest and attorney's fees and with leave to refile a claim for attorney's fees and interest or extracontractual damages (if recoverable under ERISA) in the event an agreement cannot be reached between the parties on those issues." (Engelhardt's Mot. Dismissal Count II, at 2.)

In response to the motion to dismiss, Paul Revere argued that any dismissal of Count II should reflect the court's judgment that all benefits due under the ERISA plan had been paid and that Engelhardt was not entitled to any extracontractual damages under ERISA. Although Paul Revere reiterated its willingness to discuss reimbursement of attorney's fees and noted that it had paid interest on Engelhardt's back benefits, the company stressed that it had not agreed to pay any additional interest on those benefits. ¹ Finally, Paul Revere pointed out that the motion to dismiss Count II did not resolve the issue of whether Count I was preempted by ERISA and that Paul Revere had filed a motion for summary judgment.

The district court granted Engelhardt's motion to dismiss Count II, stating it found that Engelhardt and Paul Revere had reached a "de facto settlement." The court's order further stated that "[t]he parties are left to resolve the issues of attorney's fees and the proper interest rate. The court retains jurisdiction over the resolution of these issues following this dismissal." Engelhardt v. Paul Revere Life Ins. Co., 951 F.Supp. 1003, 1006 (M.D.Ala.1996).

In the same order, the court determined that Engelhardt's fraudulent inducement claim in Count I was a purely state law claim and thus granted Engelhardt's motion to remand that claim. The court's decision to remand was based on two legal conclusions. First, the court found that Engelhardt did not have standing to bring an ERISA claim because, as an employer, he could not be an ERISA participant or beneficiary. Second, the court concluded that Engelhardt's lack of standing saved his fraud claim from ERISA preemption. The district court never addressed Paul Revere's motion for summary judgment.

In this appeal, Paul Revere contends that ERISA completely preempts Engelhardt's fraudulent inducement claim in Count I and that the district court erred by remanding that claim to state court. Paul Revere also argues that the district court abused its discretion by directing Engelhardt to dismiss his ERISA claim in Count II voluntarily and by failing to rule on Paul Revere's motion for summary judgment.

II. DISCUSSION

A. Appellate Jurisdiction To Review The Remand

Engelhardt claims that this court lacks jurisdiction to consider whether the district court improperly remanded his fraud claim to state court. He argues that the district court remanded the state law claim pursuant to 28 U.S.C. § 1447(c) due to a lack of subject matter jurisdiction. Remand orders based on § 1447(c) are "not reviewable on appeal or otherwise...." 28 U.S.C. § 1447(d).

Although the district court did not state the statutory basis for its remand order, we conclude that the court remanded the fraud claim pursuant to its discretionary authority under 28 U.S.C. § 1367, and not 28 U.S.C. § 1447. ² Section 1367(c)(3) empowers the trial court to decline to exercise supplemental jurisdiction over a state law claim if it has dismissed all of the related claims over which it has original jurisdiction. The district...