Carparts Distribution Center, Inc. v. Automotive Wholesaler's Ass'n of New England, Inc.

• Decision Date: 01 August 1994
• Docket Number: No. 93-1954,93-1954
• Citation: 37 F.3d 12
• Parties: , 3 A.D. Cases 1237, 7 A.D.D. 114, 5 NDLR P 362 CARPARTS DISTRIBUTION CENTER, INC., et al., Plaintiffs-Appellants, v. AUTOMOTIVE WHOLESALER'S ASSOCIATION OF NEW ENGLAND, INC., et al., Defendants-Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 12

37 F.3d 12

63 USLW 2252, 3 A.D. Cases 1237, 7

A.D.D. 114, 5 NDLR P 362

CARPARTS DISTRIBUTION CENTER, INC., et al., Plaintiffs-Appellants, v. AUTOMOTIVE WHOLESALER'S ASSOCIATION OF NEW ENGLAND, INC., et al., Defendants-Appellees.

No. 93-1954.

United States Court of Appeals First Circuit.

Heard Aug. 1, 1994.

Decided Oct. 12, 1994.

James P. Reidy, with whom James Q. Shirley and Sheehan Phinney Bass & Green Professional Ass'n were on brief, for appellants.

Samuel A. Marcosson, Atty., with whom James R. Neely, Jr., Deputy Gen. Counsel, Gwendolyn Young Reams, Associate Gen. Counsel and Vincent J. Blackwood, Asst. Gen. Counsel were on brief for the E.E.O.C., amicus curiae.

William Garza, Cary LaCheen, Herbert Semmel, Thomas Kendricks on brief for American Civil Liberties Union, Gay and Lesbian Advocates and Defenders and Gay Men's Health Crisis, amici curiae.

James H. Schulte, with whom Burns, Bryant, Hinchey, Cox & Schulte, P.A. was on brief, for appellees.

Before TORRUELLA, Chief Judge, COFFIN, Senior Circuit Judge, and BOUDIN, Circuit Judge.

TORRUELLA, Chief Judge.

Plaintiffs-appellants Carparts Distribution Center, Inc., Daniel W. Dirsh, and Shirley M. Senter, appeal from the district court's order dismissing their complaint for illegal discrimination based on disability under state and federal laws. The court granted judgment under Fed.R.Civ.P. 12(b)(6) in favor of defendants.

I. STANDARD OF REVIEW

Our review of dismissal under Fed.R.Civ.P. 12(b)(6) is plenary. Roth v. United States, 952 F.2d 611, 613 (1st Cir.1991). We accept as true all of the allegations in the complaint and draw all reasonable inferences in favor of the plaintiffs. Id.

II. BACKGROUND

In May 1986, Plaintiff Ronald J. Senter ("Senter") was diagnosed as infected with Human Immunodeficiency Virus ("HIV positive"). In March 1991, he was diagnosed as suffering from Acquired Immune Deficiency Syndrome ("AIDS"). He died on January 17, 1993.

Senter was the sole shareholder, president, chief executive director, and an employee of Carparts Distribution Center, Inc. ("Carparts"), an automotive parts wholesale distributor incorporated in New Hampshire.

Since 1977, Carparts has been a participant in a self-funded medical reimbursement plan known as Automotive Wholesalers Association of New England Health Benefit Plan ("the Plan") offered by the defendants in this case, Automotive Wholesalers Association of New England, Inc. ("AWANE") and its administering trust, Automotive Wholesalers Association of New England, Inc. Insurance Plan ("AWANE Plan"). Senter was enrolled in the Plan since 1977. In October 1990, AWANE Plan informed members of AWANE, including Carparts, of its intention to amend the Plan in order to limit benefits for AIDS-related illnesses to $25,000, effective January 1, 1991. Otherwise, lifetime benefits under the Plan were, and are, afforded in the amount of $1 million per eligible plan member.

On a number of occasions during and after 1989, Senter had several serious illnesses, many of which were HIV or AIDS related. Senter directly submitted claims for payment of his medical treatment and medications to AWANE and the AWANE Plan until spring or summer of 1991, when Carparts submitted the claims on Senter's behalf because he became too sick or matters were too complicated for him to do so.

Senter and Carparts ("plaintiffs" or "appellants") alleged, ¹ that the Trustees of the Plan were aware of Senter's condition at the time the amendments to the plan were adopted. Plaintiffs claim that the cap on AIDS-related illnesses was instituted by defendants with knowledge that Senter was diagnosed HIV positive, suffering from AIDS, and subject to AIDS-related medical expenses and that the lifetime cap on AIDS related expenses was instituted in response to Senter's illness and related claims that he had filed during the previous several months. According to plaintiffs, after Senter reached the lifetime cap on AIDS related illnesses, defendants breached their contractual obligation to provide, at a minimum, medical coverage to Senter for non-AIDS related treatments, by failing, neglecting or refusing to make payments for non-AIDS related matters in a complete or consistent manner.

Plaintiffs brought this action alleging that the lifetime cap on health benefits for individuals with AIDS, instituted by defendants, represented illegal discrimination on the basis of a disability. Such a discriminatory provision allegedly rendered Carparts responsible for payments to healthcare providers on Senter's behalf and effectively put The district court dismissed all of plaintiffs' claims on July 19, 1993. This appeal followed.

Carparts out of compliance with anti-discrimination laws, subjecting Carparts to potential liability under N.H.Rev.Stat.Ann. Sec. 354-A:1 ("Section 354-A:1"), a state anti-discrimination law, and the Americans with Disabilities Act ("the ADA"), 42 U.S.C. Sec. 12101, et seq.

III. DISCUSSION

A. Notice of Proposed Dismissal

Plaintiffs first contend that the district court erred in dismissing their complaint without affording them notice of the court's intended dismissal. We agree.

Plaintiffs commenced this action in the state courts of New Hampshire ten days before the ADA became effective. They asserted claims under state law only. The defendants removed the case to federal court claiming that the issues raised were governed and preempted by the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. Sec. 1001, et seq. ("ERISA").

At a pretrial conference on April 15, 1993, the defendants indicated their intention to move to dismiss the pendent claims, and the plaintiffs moved to amend their complaint to assert claims under the ADA. The plaintiffs' motion was granted and they amended their complaint to include, among others, claims alleging violations of Title I and Title III of the ADA. 42 U.S.C. Secs. 12112(a), 12182(a). The defendants filed an objection to the amendment and the district court treated the defendants' objection as a motion to dismiss under Fed.R.Civ.P. 12(b)(6). The court dismissed plaintiffs claims, holding that neither Title I nor Title III of the ADA applied to this case because neither defendant, AWANE or AWANE Plan, was an "employer" with respect to plaintiffs as required by Title I, and that neither defendant was a "public accommodation" as required by Title III.

Where no motion to dismiss has been filed, "a district court may, in appropriate circumstances, note the inadequacy of the complaint and, on its own initiative, dismiss the complaint. Yet a court may not do so without at least giving plaintiffs notice of the proposed action and affording them an opportunity to address the issue." Literature, Inc. v. Quinn, 482 F.2d 372, 374 (1st Cir.1973) (internal citations omitted); see also Pavilonis v. King, 626 F.2d 1075, 1078 & n. 6 (1st Cir.), cert. denied, 449 U.S. 829, 101 S.Ct. 96, 66 L.Ed.2d 34 (1980).

Although AWANE filed an objection to plaintiffs' motion to amend the complaint, and plaintiffs filed a response to AWANE's objection, neither filing addressed the substantive issues regarding Title I and Title III of the ADA on which the district court based its dismissal order. The court also failed to give plaintiffs any notice of its proposed dismissal, or any opportunity to respond to the perceived shortcomings in their complaint regarding their claims under Title I and Title III prior to the court's order dismissing the case pursuant to Fed.R.Civ.P. 12(b)(6). The court's failure to give such notice alone justifies reversal of this case. See Literature, 482 F.2d at 374. We also find, however, that the court's dismissal was erroneous as a matter of law. See id. The district court erred by interpreting Title I and Title III of the ADA to have excessively limited applications. Questions regarding the proper interpretation of the ADA are sure to arise on remand. Therefore, we feel that timely guidance is appropriate.

B. Title I of the ADA

Plaintiffs contend that the district court erred in finding that defendants were not "covered entities" under Title I of the ADA.

Title I of the ADA, entitled "Employment" provides:

No covered entity shall discriminate against a qualified individual with a disability ² because of the disability of such individual 42 U.S.C. Sec. 12112(a).

in regard to job application procedures, the hiring, advancement, or discharge of employees, employee compensation, job training, and other terms, conditions, and privileges of employment.

"Covered entity" is defined as "an employer, employment agency, labor organization, or joint labor-management committee." 42 U.S.C. Sec. 12111(2).

As the district court noted, this provision "makes it unlawful for a covered entity to discriminate on the basis of disability against a qualified individual with a disability in regard to, among other things, fringe benefits, available by virtue of employment, whether or not administered by the covered entity," see 29 C.F.R. Sec. 1630.4(f), and "[h]ealth insurance such as that provided by the defendants is considered a fringe benefit." Carparts Distribution Ctr. v. Automotive Wholesaler's Ass'n, 826 F.Supp. 583, 585 (D.N.H.1993). The district court found, however, that because neither defendant was an employer of Senter, neither entity qualified as a "covered entity" as defined by the ADA and therefore neither was subject to liability under Title I of the ADA. We believe that the district court erred by interpreting Title I of the ADA to permit suits only against employers who discriminate with respect to the terms and conditions of employment of their own employees.

In making our determination we look for guidance to the Civil Rights Act of 1964, as amended, 42 U.S.C. Sec. 2000e, et seq. ("Title VII") and cases interpreting that statute. There is no significant difference between the definition of the term "employer" in the two statutes. Compare 42 U.S.C....