Denny's, Inc. v. Cake

• Decision Date: 27 February 2003
• Docket Number: No. CIV.A. 702-2968-20.,CIV.A. 702-2968-20.
• Citation: 247 F.Supp.2d 813
• Parties: DENNY'S, INC., in its fiduciary capacity as plan administrator; Denny's, Inc., Vacation Pay Plan; Andrew F. Green, in his capacity as trustee of the Denny's, Inc. Employee Benefits Trust; and Denny's, Inc. Employee Benefits Trust, Plaintiffs, v. Chuck CAKE, in his capacity as Acting Director of the California Department of Industrial Relations and Arthur Lujan, in his capacity as the Labor Commissioner of the State of California, Defendants.
• Court: U.S. District Court — District of South Carolina

247 F.Supp.2d 813

DENNY'S, INC., in its fiduciary capacity as plan administrator; Denny's, Inc., Vacation Pay Plan; Andrew F. Green, in his capacity as trustee of the Denny's, Inc. Employee Benefits Trust; and Denny's, Inc. Employee Benefits Trust, Plaintiffs, v. Chuck CAKE, in his capacity as Acting Director of the California Department of Industrial Relations and Arthur Lujan, in his capacity as the Labor Commissioner of the State of California, Defendants.

No. CIV.A. 702-2968-20.

United States District Court, D. South Carolina, Spartanburg Division.

February 27, 2003.

Perry D. Boulier, Esquire, Holcombe, Bomar, Gunn and Bradford, P.A., Spartanburg, SC, for Plaintiff/Petitioner.

Miles E. Locker, Esquire, Susan A. Dovi, Esquire, Division of Labor Standards Enforcement, Department of Industrial Relations, State of California, Wendy B. Cartledge, Esquire, General Counsel, S.C. Department of Labor, Licensing and Regulation, for Defendant/Respondent.

ORDER

HERLONG, District Judge.

This matter is before the court on the defendants' motion to dismiss pursuant to Rule 12(b)(2), (3), and (6) of the Federal Rules of Civil Procedure. For the reasons set forth below, the court grants the defendants' motion to dismiss.

I. PROCEDURAL AND FACTUAL BACKGROUND

Denny's, Inc. ("Denny's") is a national restaurant chain that employs approximately thirty thousand people. Denny's, with its principal place of business in Spartanburg, South Carolina, maintains and administers the Denny's, Inc. Vacation Pay Plan ("Plan") and the Denny's, Inc. Employee Benefits Trust ("Trust"). Andrew F. Green ("Green") is the trustee of the Trust. The Plan and the Trust are located and administered in South Carolina.

The Plan provides that a salaried employee cannot use vacation days until after the completion of six months of continuous service with Denny's. (Compl. at 6.) Similarly, an hourly employee cannot use vacation days until the completion of one year of continuous service. (Id. at 6-7.) The plaintiffs allege that the Plan and the Trust are governed by the Employment Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C § 1001, et seq. California Labor Code Section 227.3 is in conflict with the Plan's vacation policy. California Labor Code Section 227.3 states:

Unless otherwise provided by a collective-bargaining agreement, whenever a contract of employment or employer policy provides for paid vacations, and an employee is terminated without having taken off his vested vacation time, all vested vacation shall be paid to him as wages at his final rate in accordance with such contract of employment or employer policy respecting eligibility or time served; provided, however, that an employment contract or employer policy shall not provide for forfeiture of vested vacation time upon termination.

Cal. Lab.Code § 227.3.

On July 11, 2001, the plaintiffs received a letter from Susan A. Dovi ("Dovi"), a staff attorney working for defendants Chuck Cake ("Cake"), Acting Director of the California Department of Industrial Relations, and Arthur Lujan ("Lujan"), Labor Commissioner of the State of California, in which Dovi states the Plan and the Trust are not employee welfare benefit plans covered under ERISA and that they violate section 227.3 of the California Labor Code. (Compl. at 6.) In the July 11, 2001, letter Dovi further states that the California Department of Labor Standards Enforcement intends to file a lawsuit "seeking unpaid vacation benefits and penalties for all former California employees of Denny's for a four-year period of time." (Id.)

On September 6, 2002, the plaintiffs filed the instant lawsuit seeking a declaratory judgment and injunctive relief. Specifically, the plaintiffs ask the court to declare that the Plan and the Trust are governed by ERISA and that ERISA preempts section 227.3.¹ (Compl. at 10.) In addition, the plaintiffs seek preliminary and permanent injunctive relief barring the defendants from taking action to enforce section 227.3 against Denny's. (Id.) On September 24, 2002, the defendants filed a claim against Denny's in California state court seeking to enforce section 227.3.

II. LEGAL DISCUSSION

Pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure, the defendants move to dismiss for lack of personal jurisdiction. Specifically, the defendants challenge the application of 29 U.S.C. § 1132(e)(2) as the basis for personal jurisdiction. "[C]ourts address issues relating to personal jurisdiction before reaching the merits of the plaintiff[s'] claims." Sadighi v. Daghighfekr, 36 F.Supp.2d 267, 270 (D.S.C.1999). When personal jurisdiction is challenged by the defendant, a plaintiff has the burden of showing that jurisdiction exists. See In re Celotex Corp., 124 F.3d 619, 628 (4th Cir. 1997). "When a district court decides a retrial personal jurisdiction dismissal motion without an evidentiary hearing, [p]laintiffs need only prove a prima facie case of personal jurisdiction." Sadighi, 36 F.Supp.2d at 270. In making this determination, the court looks to the complaint and any supporting affidavits. See In re Celotex Corp., 124 F.3d at 628. Furthermore, the court will construe factual allegations in favor of the plaintiff. See id. While most personal jurisdiction challenges involve a factual analysis, the personal jurisdiction challenge in this case turns on a legal determination.

The analysis begins with ERISA § 502(e)(2), which states:

Where an action under this subchapter is brought in a district court of the United States, it may be brought in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found, and process may be served in any other district where a defendant resides or may be found. 29 U.S.C. § 1132(e)(2). The interpretation of this statute is not in dispute.² Instead, the question before the court is whether ERISA § 502(e)(2) applies to this case. If it does not, it seems apparent that the court cannot exercise personal jurisdiction over the defendants.³

As the United States Court of Appeals for the Sixth Circuit noted, "[personal jurisdiction under [ERISA § 502(e)(2) ] depends on subject matter jurisdiction under [ERISA § 502(a)(3) ]." NGS Am, Inc. v. Jefferson, 218 F.3d 519, 524 (6th Cir.2000).⁴ In other words, ERISA § 502(e)(2) applies and therefore personal jurisdiction exists only if the plaintiffs' claims fall within ERISA's civil enforcement provision, specifically ERISA § 502(a)(3).⁵ ERISA § 502(a)(3) states: A civil action may be brought—by a ... fiduciary ... to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or ... to obtain other appropriate equitable relief ... to redress such violations or ... to enforce any provisions of this subchapter or the terms of the plan. 29 U.S.C. § 1132(a)(3). Assuming for this analysis the plaintiffs are ERISA fiduciaries the question becomes whether the requested injunctive and declaratory relief falls within ERISA § 502(a)(3). The plaintiffs, as ERISA fiduciaries, are requesting the court to declare that section 227.3 is preempted by ERISA and to therefore enjoin state officials from enforcing the provision. The question is whether such an action falls within ERISA § 502(a)(3).⁶ The court finds that it does not.

An analysis of whether the plaintiffs' claims fall within ERISA § 502(a)(3) begins with a discussion of subject matter jurisdiction. ERISA § 514 states, subject to exceptions, that all state laws which relate to an ERISA plan are preempted by ERISA. See 29 U.S.C. § 1144. If the plaintiffs raise ERISA § 514 as a defense in the California state action, the plaintiffs will not be able to remove the case to federal court. See Darcangelo v. Verizon Communications, Inc., 292 F.3d 181, 186-87 (4th Cir.2002) (holding that the doctrine of complete preemption, not ERISA § 514, gives rise to removal jurisdiction). Therefore, the question is whether raising the ERISA § 514 defense in the form of a declaratory judgment action changes this analysis. Specifically, the court must determine whether it has subject matter jurisdiction over the case and personal jurisdiction over the defendants.

We start with a review of the United States Supreme Court's opinion in Franchise Tax Board. In Franchise Tax Board, the Franchise Tax Board of California filed suit in state court against the Construction Laborers Vacation Trust for Southern California ("CLVT") to enforce certain California tax provisions and alleged a claim pursuant to the California Declaratory Judgment Act seeking a declaration that ERISA did not preempt the California tax laws at issue. 463 U.S. at 5-7, 103 S.Ct. 2841. In that case, the CLVT was "unquestionably an employee welfare benefit plan" under ERISA. Id. at 5, 103 S.Ct. 2841. The case was removed to federal court, and on appeal the United States Supreme Court determined that removal jurisdiction did not exist. See id. at 4, 103 S.Ct. 2841.

The Supreme Court noted "the propriety of removal turns on whether the case falls within the original `federal question' jurisdiction of the United States" and stated that anticipation of a federal defense does not confer federal question jurisdiction. Id. at 8,10, 103 S.Ct. 2841. Because both of the plaintiffs causes of action arose under state law, the Court determined that "original federal jurisdiction is unavailable unless it appears that some substantial, disputed question of federal law is a necessary element of one of the well-pleaded state claims, or that one or the other claim is `really' one of federal law." Id. at 13, 103 S.Ct. 2841. Discussing the declaratory judgment cause of action, the Court stated: "Whereas the question of federal pre-emption is relevant to appellant's first cause of action only as a potential defense, it is a necessary element of the declaratory judgment claim." Id. at 14, 103 S.Ct. 2841. The Court went on to state that "it is clear on...