CEDAR RAPIDS PED. CL. PP v. Continental Assur. Co.

• Decision Date: 27 June 1988
• Docket Number: No. Civ. 86-5192,Civ. 87-5091.,Civ. 86-5192
• Citation: 690 F. Supp. 792
• Parties: BOARD OF TRUSTEES OF CEDAR RAPIDS PEDIATRIC CLINIC, P.A., PENSION PLAN et al., Plaintiffs, Ozark Supply Company Pension Trust, Trustees of Farmers and Merchants Bank Pension Plan, Intervening Plaintiffs, v. CONTINENTAL ASSURANCE CO. et al., Defendants. OZARK SUPPLY COMPANY PENSION TRUST, Plaintiff, v. CONTINENTAL ASSURANCE CO. et al., Defendants.
• Court: U.S. District Court — Western District of Arkansas

690 F. Supp. 792

BOARD OF TRUSTEES OF CEDAR RAPIDS PEDIATRIC CLINIC, P.A., PENSION PLAN et al., Plaintiffs, Ozark Supply Company Pension Trust, Trustees of Farmers and Merchants Bank Pension Plan, Intervening Plaintiffs, v. CONTINENTAL ASSURANCE CO. et al., Defendants.

OZARK SUPPLY COMPANY PENSION TRUST, Plaintiff, v. CONTINENTAL ASSURANCE CO. et al., Defendants.

Nos. Civ. 86-5192, Civ. 87-5091.

United States District Court, W.D. Arkansas, Fayetteville Division.

June 27, 1988.

Tracy Barger, Byron Freeland and Susan Gunter, Mitchell, Williams, Selig & Tucker, Little Rock, Ark., for Board of Trustees of Cedar Rapids Pediatric Clinic, P.A., Pension Plan et al.

Thomas E. Burke, Fayetteville, Ark., Gary Elden, Marc Lauerman, and Darrell J. Graham, Chicago, Ill., for Continental Assur. Co.

Richard Wommack, Fayetteville, Ark., for Morton & Co., Inc., Actuarial Associates of America—Little Rock, Inc., Morton & Associates, Inc., MGA, Inc., Morton Pension Administrative Systems, Inc. and William C. Morton, Jr.

K.R. Lashlee, Rogers, Ark., for Ozark Supply Co. Pension Trust.

Mitchell, Williams, Selig & Tucker, Little Rock, Ark., for Trustees for Farmers & Merchants Bank Pension Plan.

MEMORANDUM OPINION

MORRIS SHEPPARD ARNOLD, District Judge.

The plaintiffs¹ are various employers who had pension plans that were arranged with defendant Continental Assurance Company in 1974.² The intermediaries in the transactions were William Morton, George Morton, and several insurance agencies owned or operated by them. In actuality, William Morton siphoned off much of the money that the employers thought they were contributing to the pension plans. The scheme was discovered in 1986, when the employers requested an accounting statement directly from Continental Assurance Company and were shocked to learn that only $3,678.04 had been credited to their accounts.

The plaintiffs have sued Continental Assurance Agency, the Mortons, and the Morton agencies,³ alleging violations of the federal Employer Retirement Income Security Act (ERISA) and common-law claims based on breach of contract, fraud, conversion, negligence, breach of fiduciary duty, right to an accounting, and conspiracy. Continental Assurance Company has moved to dismiss several counts of the plaintiffs' first amended complaint, to dismiss several paragraphs of one intervening plaintiff's complaint, and to dismiss entirely the plaintiffs' complaint as to one plaintiff. Continental Assurance Company has also moved for judgment on the pleadings as to several counts of the other intervening plaintiff's complaint. The motions will be granted in part and denied in part.

I.

Defendant Continental Assurance Company first moves to dismiss counts 4-11 of the plaintiffs' complaint and to dismiss paragraphs 30-43 of the complaint of intervening plaintiff F & M Bank Pension Plan. These are the counts alleging common-law claims. The basis for defendant Continental Assurance Company's motion is its contention that the provisions of ERISA preempt any claims under state law that relate to employer benefit plans.

As part of ERISA, Congress declared that "the provisions of the subchapters on protection of employee benefit rights and on plan termination insurance shall supersede any and all State laws insofar as they may ... relate to any employee benefit plan." 29 U.S.C. § 1144(a). This preemptive effect extends not only to state statutes that would regulate employee benefit plans, Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98, 103 S.Ct. 2890, 2900, 77 L.Ed.2d 490 (1983), but also to state common-law claims that would relate to employee benefit plans. Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, ___ - ___, 107 S.Ct. 1549, 1553, 95 L.Ed.2d 39 (1987).

The plaintiffs make two arguments on this point. They first argue that whether their state claims "relate to any employee benefit plan," see 29 U.S.C. § 1144(a), is a question of fact, and they suggest therefore that the court should delay a ruling on the preemption issue until the close of discovery. In support, they cite Dedeaux, in which the Supreme Court described the issue as having arisen on a motion for summary judgment at "the close of discovery." Dedeaux, ___, 107 S.Ct. at 1551-52.

Nothing in Dedeaux indicates that resolution of this question must be deferred until the close of discovery, however, and in Shaw, in fact, the issue was raised and decided on a motion to dismiss. See Shaw, 463 U.S. at 93 n. 9, 103 S.Ct. at 2897 n. 9, and Delta Air Lines, Inc. v. Kramarsky, 485 F.Supp. 300, 302 (S.D.N.Y.1980) (one of the cases decided on the appeal in Shaw). There is not one assertion in any of the plaintiffs' complaints that would lead the court to conclude that the injuries alleged relate to anything other than an employee benefit plan, as that term is defined by ERISA. See 29 U.S.C. § 1002(1), § 1002(2)(A), § 1002(3), and § 1003(a). The court therefore sees no reason why it should delay a ruling on the preemption argument.

The plaintiffs' second argument is more subtle. Essentially, the plaintiffs contend that what might ordinarily be considered state common-law claims are in fact now federal common-law claims, having been incorporated into the federal common law because of the "comprehensive" protection intended by ERISA "to promote the interests of employees and their beneficiaries in employee benefit plans." Shaw, 463 U.S. at 90, 103 S.Ct. at 2896. In support, they cite Kuntz v. Reese, 760 F.2d 926 (9th Cir.1985), vacated on other grounds, 785 F.2d 1410 (9th Cir.1986) (per curiam), cert. denied, 479 U.S. 916, 107 S.Ct. 318, 93 L.Ed.2d 291 (1986).

In Kuntz, the court found that a state common-law claim for misrepresentation was preempted by ERISA. Id. at 935. See also Anderson v. John Morrell and Co., 830 F.2d 872, 875 (8th Cir.1987), and Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208, 1215 (8th Cir.1981), cert. denied, 454 U.S. 968, 102 S.Ct. 512, 70 L.Ed.2d 384 (1981). The court also found, however, that the plaintiffs' allegations of misrepresentation stated a claim for breach of fiduciary duty under ERISA. Kuntz, 760 F.2d at 935; see also 29 U.S.C. § 1104(a)(1).

As a practical matter, the effect of finding certain state common-law causes of action preempted but then holding that the allegations as to those causes of action are sufficient to state a claim under ERISA seems to be only that the number of separate fact questions to be answered at trial would be reduced. Certainly the court in Kuntz did not hold that the allegations in question stated federal causes of action separate from those stated under ERISA, and if that is the argument the plaintiffs are making here, this court declines to accept it.

However, following the reasoning used in Kuntz, this court finds that the plaintiffs' allegations as to common-law claims based on breach of contract⁴ and negligence state a claim under ERISA for breach of fiduciary duty. See 29 U.S.C. § 1104(a). The court further finds that the plaintiffs' allegations as to common-law claims based on fraud, conversion, breach of fiduciary duty, right to an accounting,⁵ and conspiracy state a claim under ERISA either for breach of fiduciary duty, taking into consideration the plaintiffs' allegations as to agency, see 29 U.S.C. § 1104(a), or for breach of duty by a co-fiduciary, see 29 U.S.C. § 1105(a), or for both.

For the reasons discussed, the court holds, therefore, that although state common-law claims are preempted under ERISA and will be dismissed as state claims, the court will not strike the allegations in counts 4-11 of the plaintiffs' first amended complaint or those in paragraphs 30-43 of the complaint of intervening plaintiff F & M Bank Pension Plan but instead will construe those allegations as descriptive of the claims that can admittedly be brought under ERISA.

II.

Defendant Continental Assurance Company also moved to dismiss entirely the complaint as to plaintiff Haskell Jackson IRA, alleging that because its claims are based on an individual retirement account (IRA) they are not covered by ERISA and that no diversity exists that would permit those claims to be brought as state law claims in this court. In response, the plaintiffs apparently conceded that IRAs are not covered by ERISA but suggested that the court may exercise pendent party jurisdiction over plaintiff Jackson IRA to resolve its state common-law claims, which are identical to the common-law claims construed above as describing the ERISA claims asserted by the other plaintiffs. In reply to that response, defendant Continental Assurance Company states that "the interests of judicial economy and efficiency would be best served" by the court's allowing plaintiff Jackson IRA to remain in the suit.

It is clear that since ERISA covers only those employee benefit plans established or maintained by employers, employee organizations, or both, see 29 U.S.C. § 1003(a), and since IRAs are established and maintained by individuals, plaintiff Jackson IRA is not covered by ERISA. The claims on its behalf under counts 1-3 of the plaintiffs' complaint must, therefore, be dismissed.

The dismissal of those counts leaves, as to plaintiff Jackson IRA, only the counts alleging state common-law claims. Furthermore, since no federal question exists as to plaintiff Jackson IRA, the only basis for jurisdiction over state law claims as to plaintiff Jackson IRA is diversity of citizenship. See 28 U.S.C. § 1331, § 1332. However, both plaintiff Jackson IRA and at least one of the defendants are citizens of Arkansas, so that diversity, and therefore jurisdiction, is lacking.

The parties have suggested that plaintiff Jackson IRA could be retained as a plaintiff under the doctrine of pendent party jurisdiction. The court, however, does not agree.

In Aldinger v. Howard, 427 U.S. 1, 6, 96 S.Ct. 2413, 2416, 49 L.Ed.2d 276 (1976), the Supreme Court noted, "The question whether `pendent' federal jurisdiction encompasses not...