Data Mktg. P'ship, LP v. U.S. Dep't of Labor, 20-11179

• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)
• Writing for the Court: Andrew S. Oldham, Circuit Judge
• Citation: 45 F.4th 846
• Parties: DATA MARKETING PARTNERSHIP, LP; LP Management Services, LLC, Plaintiffs—Appellees, v. UNITED STATES DEPARTMENT OF LABOR ; Martin Walsh, Secretary, U.S. Department of Labor ; United States of America, Defendants—Appellants.
• Docket Number: 20-11179
• Decision Date: 17 August 2022

45 F.4th 846

DATA MARKETING PARTNERSHIP, LP; LP Management Services, LLC, Plaintiffs—Appellees,
v.
UNITED STATES DEPARTMENT OF LABOR ; Martin Walsh, Secretary, U.S. Department of Labor ; United States of America, Defendants—Appellants.

No. 20-11179

United States Court of Appeals, Fifth Circuit.

FILED August 17, 2022

Jonathan D. Crumly, Sr., Bryan Francis Jacoutot, Reginald L. Snyder, Taylor English Duma, L.L.P., Atlanta, GA, Warren W. Harris, Bracewell, L.L.P., Houston, TX, for Plaintiffs-Appellees.

Michael Shih, Mark Bernard Stern, Esq., U.S. Department of Justice, Civil Division, Appellate Section, Washington, DC, for Defendants-Appellants.

Nandan M. Joshi, Counsel, Allison M. Zieve, Public Citizen Litigation Group, Washington, DC, for Amicus Curiae Public Citizen.

Kathryn McDermott Speaks, Pennsylvania Insurance Department, Harrisburg, PA, for Amici Curiae Pennsylvania Insurance Department, Colorado Division of Insurance, Connecticut Insurance Department, District of Columbia Department of Insurance, Securities & Banking, Hawaii Insurance Division, Maine Bureau of Insurance, Maryland Insurance Administration, New Mexico Office of Superintendent of Insurance, Oregon Department of Consumer & Business Services - Financial Regulation Division, South Dakota Department of Labor and Regulation - Division of Insurance, Vermont Department of Financial Regulation, Washington Office of Insurance Commissioner.

Jason Elam, Cosmich, Simmons & Brown, P.L.L.C., New Orleans, LA, for Amici Curiae Adam Rochestere, John Fiedler, Benjamin Clear.

Michael T. Raupp, Husch Blackwell, L.L.P., Kansas City, MO, Jennifer Maureen McAdam, National Association of Insurance Commissioners, Kansas City, MO, for Amicus Curiae National Association of Insurance Commissioners.

Jon Breyfogle, Tammy Killion, Matthew W. Lanahan, Groom Law Group, Chartered, Washington, DC, for Amicus Curiae Blue Cross Blue Shield Association.

Alexander Kazam, King & Spalding, L.L.P., King & Spalding, L.L.P., for Amici Curiae Leukemia and Lymphoma Society, American Cancer Society, American Cancer Society Cancer Action Network, Cystic Fibrosis Foundation, National Organization for Rare Disorders.

Caroline Van Zile, Esq., Office of the Attorney General for the District of Columbia, Office of the Solicitor General, Washington, DC, for Amici Curiae District of Columbia, State of California, State of Colorado, State of Connecticut, State of Delaware, State of Illinois, State of Maine, State of Maryland, State of Massachusetts, State of Michigan, State of Minnesota, State of Nevada, State of New Jersey, State of New Mexico, State of New York, State of North Carolina, State of Pennsylvania, State of Rhode Island, State of Vermont, State of Virginia, State of Washington, State of Wisconsin.

Before Smith, Elrod, and Oldham, Circuit Judges.

Andrew S. Oldham, Circuit Judge:

45 F.4th 851

There are three questions presented. The first is whether the Department of Labor's self-labeled "advisory opinion" is reviewable "final agency action" under the Administrative Procedure Act. It is. The second is whether the Department's action is arbitrary, capricious, or otherwise contrary to law. Again, it is. The third is whether the district court issued the appropriate relief. Here, we affirm the district court's vacatur of the agency action. But we vacate and remand the district court's injunction for further consideration in light of this opinion.

I.

We first (A) detail the relevant statutory and regulatory background. Then we (B) describe the factual and procedural background.

A.

First, some legal background. This appeal involves the Employee Retirement Income Security Act of 1974 ("ERISA"). ERISA was "[e]nacted to protect the interests of participants in employee benefit plans and their beneficiaries." Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon , 541 U.S. 1, 6, 124 S.Ct. 1330, 158 L.Ed.2d 40 (2004) (quotation omitted). It "pre-empts ‘any and all State laws insofar as they may now or hereafter relate to any employee benefit plan’ covered by ERISA." Rutledge v. Pharm. Care Mgmt. Ass'n , ––– U.S. ––––, 141 S. Ct. 474, 479, 208 L.Ed.2d 327 (2020) (quoting 29 U.S.C. § 1144(a) ). If ERISA doesn't regulate the plan, then state law does.

One relevant plan regulated by ERISA is an "employee welfare benefit plan," which can be used by employers to provide health insurance to "participants." 29 U.S.C. § 1002(1). ERISA defines a "participant" as "any 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 which covers employees of such employer ..., or whose beneficiaries may be eligible to receive any such benefit." Id. § 1002(7). It in turn defines an "[e]mployee" as "any individual employed by an employer" and an "employer" as "any person acting directly as an employer, or indirectly in the interest

45 F.4th 852

of an employer, in relation to an employee benefit plan." Id. § 1002(5), (6). As relevant here, a "working owner" or a "bona fide partner" may be an "employee." See Yates , 541 U.S. at 6, 124 S.Ct. 1330 (working owner); 29 C.F.R. § 2590.732(d)(2) (bona fide partner).

The Department of Labor set up a procedure to formally provide guidance to entities. See Advisory Opinion Procedure, 41 Fed. Reg. 36,281 (Aug. 27, 1976). It provides two options: (1) "advisory opinions" and (2) "information letters." An "advisory opinion" is "a written statement issued to an individual or organization, or to the authorized representative ..., that interprets and applies the Act to a specific factual situation." Id. at 36,282. In certain circumstances, the requester "may rely on the opinion." Id. at 36,283. By contrast, an "information letter" is "a written statement ... that does no more than call attention to a well-established interpretation or principles ... without applying it to a specific factual situation." Id. at 36, 282.

B.

Next, the factual and procedural background. LP Management Services, LLC ("Management Services") serves as the general partner of several limited partnerships, including Data Marketing Partnership ("Data Marketing").

In November 2018, Management Services requested an advisory opinion from the Department to confirm that a proposed health insurance plan for its limited partnerships would qualify as an employee welfare benefit plan under ERISA. In the request, it described Data Marketing's business model. Its business is "the capture, segregation, aggregation, and sale to third-party marketing firms of electronic data generated by [limited partners] who share such data with" Data Marketing. The limited partners share that data by "install[ing] specific software [that] tracks the capture of such data by other companies ... and provides access of such data to" Data Marketing. Data Marketing then processes, aggregates, and sells that data to marketers.

The request also described the limited partners' relationship with Data Marketing. Individuals become limited partners by executing a joinder agreement subject to the approval of Management Services. They then receive a "Limited Partnership Interest" that permits them to "participate in global management issues through periodic votes of all Partners." That partnership interest also lets them receive income distributions from Data Marketing that "will be reported as guaranteed payments and subject to employment taxes."

By October 2019, the Department still had not issued an advisory opinion. So plaintiffs sued, sought a declaration that their plan was covered by ERISA, and moved for an injunction ordering the Department not to release a contrary advisory opinion.

A few months later, the Department issued a six-page advisory opinion. Based on the facts in the request and the complaint, the Department concluded that plaintiffs' plan was not covered by ERISA. According to the Department, the limited partners were neither working owners nor bona fide partners because their work lacked hallmarks of a traditional employment relationship and their financial stake and participation in the management of the business was not serious enough. The Department also emphasized that plaintiffs' structure was a sham, intended only to sell insurance to consumers under ERISA rather than state law.

Plaintiffs then amended their complaint to challenge the lawfulness of the advisory opinion. Thereafter, plaintiffs and the Department

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cross-moved for summary judgment. The district court granted plaintiffs' motion, denied the Department's cross-motion, vacated the agency action, and permanently enjoined the Department "from refusing to acknowledge the ERISA-status of the Plan or refusing to recognize the Limited Partners as working owners of" Data Marketing.

The district court reached two relevant conclusions. First, the district court concluded that the advisory opinion was final agency action. That's because no further agency review was available and because the opinion denied plaintiffs the safe harbor of federal preemption, which exposed them to state insurance regulation. Second, the district court concluded that the advisory opinion was arbitrary,...