Eichhorn, Eichhorn & Link v. Travelers Ins. Co.

• Decision Date: 09 August 1995
• Docket Number: No. 2:94 cv 21JM.,2:94 cv 21JM.
• Citation: 896 F. Supp. 812
• Parties: EICHHORN, EICHHORN & LINK, et al., Plaintiffs, v. The TRAVELERS INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Indiana

896 F. Supp. 812

EICHHORN, EICHHORN & LINK, et al., Plaintiffs, v. The TRAVELERS INSURANCE COMPANY, Defendant.

No. 2:94 cv 21JM.

United States District Court, N.D. Indiana, Hammond Division.

August 9, 1995.

David C. Jensen, Eichhorn, Eichhorn and Link, Hammond, IN, for plaintiffs.

Mark E. Schmidtke, Hoeppner Wagner and Evans, Valparaiso, IN, for defendant.

ORDER

MOODY, District Judge.

Plaintiffs — a law firm, one of its partners, Roy Robertson, and Robertson's daughter — brought this suit in state court claiming that defendant The Travelers Insurance Company had failed to pay them medical benefits due under a group policy issued by defendant covering the firm's employees and their dependents. Defendant removed the case, asserting that plaintiffs' state law claims are preempted by and federal jurisdiction exists under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. ERISA, which was enacted to safeguard "the interests of employees and their beneficiaries," 29 U.S.C. § 1001(a), broadly preempts state law claims relating to employee benefit plans. 29 U.S.C. § 1144(a).

A private individual bringing suit for benefits due under a benefit plan subject to ERISA¹ must be either a "participant" or a "beneficiary." 29 U.S.C. § 1132(a).² ERISA defines (as relevant here) a participant as an "employee or former employee of an employer ... who is or may become eligible to receive a benefit of any type from an employee benefit plan" and a beneficiary as "a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder." 29 U.S.C. § 1002(7), (8). Plaintiffs have moved for a remand to state court, arguing that because a law firm partner is an employer, not an employee, the partner is not a "participant" or "beneficiary" able to bring suit under ERISA so no preemption occurs nor does federal jurisdiction exist. See Madden v. Country Life Ins. Co., 835 F.Supp. 1081, 1087 (N.D.Ill.1993) (law firm partner "does not qualify as either a participant or beneficiary able to invoke ERISA's remedies.")

Madden provides an excellent discussion of the split in the authorities that have considered this issue. Madden agreed with decisions in the First, Sixth and Tenth circuits, considering situations sufficiently analogous to law firm partnerships and holding that individuals with the dual status of employer/employee may not bring an action under ERISA to recover benefits. Fugarino v. Hartford Life and Accident Ins. Co., 969 F.2d 178, 186 (6th Cir.1992) (sole proprietor and his dependents not participants or beneficiaries); Kwatcher v. Massachusetts Service Employees Pension Fund, 879 F.2d 957, 959 (1st Cir.1989) (sole shareholder of corporation not a participant; under ERISA employer/employee "meant to be separate animals ... the twain shall never meet"); Peckham v. Board of Trustees of the Int'l Brotherhood of Painters, 653 F.2d 424, 428 n. 7 (10th Cir.1981) (sole proprietors not participants and cannot bring suit under ERISA).

The Eighth and Ninth Circuits have taken a contrary view.³ Both of these Circuits have concluded that the plain language of ERISA § 1002(8), defining a beneficiary as a person entitled to benefits because "designated by a participant, or by the terms of an employee benefit plan" (emphasis added), allows dual status individuals to bring suit as beneficiaries. Robinson v. Linomaz, 58 F.3d 365 (8th Cir.1995) (sole shareholder may be beneficiary entitled to bring suit under ERISA); Peterson v. American Life & Health Ins. Co., 48 F.3d 404, 409 (9th Cir. 1995) (partner could bring suit because "any person designated to receive benefits from a policy that is part of an ERISA plan may bring a civil suit as a beneficiary to enforce ERISA"); Harper v. American Chambers Life Ins. Co., 898 F.2d 1432 (9th Cir.1990) (partners, as employers, are not participants but may be beneficiaries).

The Court of Appeals for the Seventh Circuit has not addressed whether an employer (whether a sole shareholder or a partner), can be a "beneficiary" entitled to bring suit under ERISA. However, Giardono v. Jones, 867 F.2d 409 (7th Cir.1989), held that a sole proprietor has no standing to bring suit as an ERISA "participant." Id. at 411. The rationale for this holding was that a fundamental requirement of ERISA is that no plan asset may inure to the benefit of an employer. Id.

Because this rationale would equally prohibit a partner-employer from receiving plan assets by assuming the role of a plan beneficiary, Madden believed the view of the Eighth and Ninth Circuits should be rejected by district courts in this circuit. Madden, 835 F.Supp. at 1086; see also Bane v. Ferguson, 890 F.2d 11, 12 (7th Cir.1989) ("ERISA excludes partners from its protections."); but cf. McNeilly v. Bankers United Life Assur. Co., 999 F.2d 1199 (7th Cir.1993) (sole proprietor's state court suit removed due to ERISA preemption; Court of Appeals did not question his standing or its own jurisdiction); Reiherzer v. Shannon, 581 F.2d 1266 (7th Cir.1978) (subject matter jurisdiction found to exist under ERISA over claim by 90% shareholder for denial of benefits). Madden also rejected the view that a partner-employer can invoke ERISA as a beneficiary because:

The plain meaning analysis relied upon in Harper strains credulity. The word "beneficiary," as it is commonly understood, applies to family members and others whom employees select to benefit from their end of the bargain. It is hard to imagine Congress intended an employer to be able to designate himself as his employee's chosen beneficiary.

Madden, 835 F.Supp. at 1086-87.

This court agrees that in enacting ERISA Congress did not mean to protect employers, and so it is with great reluctance that the court must disagree with Madden's thoughtful analysis. As opposed to straining credulity, however, Harper, affirmed in Peterson and adopted by the Eighth Circuit in Robinson, is eminently reasonable. As noted by Madden, an employee's family members are commonly understood to be beneficiaries: Congress thought the same, defining "beneficiary" to include those persons "designated by a participant" to receive benefits. 29 U.S.C. § 1002(8). But Congress then added a second category of persons to the definition: those designated "by the terms of an employee benefit plan" to receive benefits. Ibid. Madden's interpretation reads this latter phrase out of the statute; the Eighth and Ninth Circuits give the phrase meaning.

It may be that sloppy drafting has opened an unintentional loophole in the definition of beneficiary. But that error, if it is an error, is for Congress to rectify. It is not for the court to interpret § 1002(8) so as to effectuate what the court presumes Congress's intent to have been. Instead, the court must apply the plain text of the statute to the facts at hand. "We must determine what Congress meant by what it enacted, not what Senators and Representatives said, thought, wished or hoped." NAACP v. American Family Mutual Insurance Co., 978 F.2d 287, 294 (7th Cir.1992); Mertens v. Hewitt Assoc., ___ U.S. ___, ___, 113 S.Ct. 2063, 2071, 124 L.Ed.2d 161, 173-74 (1993) ("vague notions of a statute's `basic purpose' ... inadequate to overcome the words of its text.... This is especially true with legislation such as ERISA, an enormously complex and detailed statute ..." (citation omitted)).

Despite suggestion in Madden to the contrary, 835 F.Supp. at 1086, the court does not believe that either Giardono or Bane require a different decision. Giardono considered only whether an employer could qualify as a "participant" under the statutory definition; it did not consider the issue raised in this case regarding the definition of beneficiary. 867 F.2d at 411. The broad statement in Bane that partners are excluded from ERISA's protections is dicta. 890 F.2d at 12. Moreover, Bane's authority for the proposition, 29 C.F.R. § 2510.3-3(c)(2), has plausibly been interpreted as meaning only that a plan that covers partners alone is not a plan subject to ERISA. Robinson, 58 F.3d at 369; Madonia v. Blue Cross & Blue Shield of Virginia, 11 F.3d 444, 448 (4th Cir.1993). As a result, this court holds in accord with the Eighth and Ninth Circuits that a partner-employer may be a "beneficiary" if designated to receive benefits by an ERISA plan.

In so holding, the court has not overlooked plaintiffs' argument that they are not beneficiaries because, while the insurance policy involved herein may give them benefits, the insurance policy is not the plan. Instead, according to plaintiffs, the policy is merely an insurance product purchased pursuant to the plan and evidence that a plan exists. Their purchase of coverage under the same group policy issued to the plan does not make their insurance part of the plan. Madden, 835 F.Supp. at 1086; Kelly v. Blue Cross & Blue Shield of Rhode Island, 814 F.Supp. 220, 227-28 (D.R.I.1993).

The court is not persuaded by this argument. Plaintiffs have provided the court with no alternative evidence of the terms of the plan. To the contrary, the only evidence the court has of the plan is attached to plaintiffs' complaint, a copy of a document entitled the "Summary Plan Description and Certificate of Insurance." While the document itself appears to limit coverage to "Employees," it is undisputed that plaintiff Robertson and his daughter were issued coverage pursuant to the certificate.⁴ An insurance policy can itself be a plan. Robinson, 58 F.3d at 368.

More importantly, even assuming that the plan exists apart from a insurance policy purchased by the plan, the policy nevertheless is a component of the plan which may furnish some of the plan terms. To sever the policy from the plan, as done in Madden and Kelly,

would create the anomaly of requiring some insureds to pursue benefit claims under state law while requiring others covered by the identical policy to proceed under E

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