DiMartino v. Somerset Financial Services, L.L.C., IP 03:cv-0672-JDT-WTL (S.D. Ind. 12/16/2003)

• Decision Date: 16 December 2003
• Docket Number: IP 03:cv-0672-JDT-WTL.
• Citation: DiMartino v. Somerset Financial Services, L.L.C., IP 03:cv-0672-JDT-WTL (S.D. Ind. 12/16/2003) (S.D. Ind. 2003)
• Parties: NANCY A. DiMARTINO and LAFAYETTE CANCER CARE, P.C., Plaintiffs, v. SOMERSET FINANCIAL SERVICES, L.L.C., Defendant.
• Court: U.S. District Court — Southern District of Indiana

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NANCY A. DiMARTINO and LAFAYETTE CANCER CARE, P.C., Plaintiffs, v. SOMERSET FINANCIAL SERVICES, L.L.C., Defendant.

IP 03:cv-0672-JDT-WTL.

United States District Court, S.D. Indiana.

December 16, 2003.

ENTRY DISCUSSING PLAINTIFFS' OBJECTION TO REMOVAL AND MOTION TO REMAND FOR LACK OF SUBJECT MATTER JURISDICTION¹

JOHN TINDER, District Judge.

Plaintiffs, Nancy A. DiMartino ("DiMartino") and Lafayette Cancer Care, P.C. (LCC), filed an action in Marion County Superior Court against Defendant Somerset Financial Services, L.L.C. ("Somerset"), alleging two counts of fraud, two counts of negligence/malpractice, and one count of conversion. The Defendant removed the action to federal court. This matter comes before the court on Plaintiffs' Objection to Removal and Motion to Remand for Lack of Subject Matter Jurisdiction. Having considered this motion and the submissions of both parties, the court decides as follows:

I. Background

On March 28, 2003, Plaintiffs filed a Complaint against the Defendant in Marion County Superior Court, alleging two counts of fraud, two counts of negligence, and one count of conversion. DiMartino, who lives and works in Lafayette, Indiana, is an oncologist and the sole shareholder of LCC. (Compl. ¶ 1.) LCC is an Indiana professional corporation, taxable as a "C" corporation, through which DiMartino conducts her practice. (Id. ¶ 2.) Somerset is an Indiana limited liability company, with its principal place of business in Indianapolis, Indiana, and provides accounting, wealth management, and other financial services to businesses and individuals. (Id. ¶ 4.)

In 1996, DiMartino, personally and for LCC, retained Somerset "to provide a variety of accounting and financial consulting services, including . . . tax and asset analysis, preparation of income statements, balance sheets, tax returns and related records, and provision of various financial advice." (Id.) Specifically, the Plaintiffs retained Steven Diagostino ("Diagostino"), a Somerset principal. (Id.) Late in 2000, DiMartino and Diagostino began meeting to discuss how DiMartino could better plan for income after retiring from the practice of medicine. (Id. ¶ 5.) During one of the meetings, Diagostino suggested that DiMartino meet with Steve Dum ("Dum"). According to the Plaintiffs, Diagostino referred to Dum as a colleague, who specialized in wealth management and related areas. The Complaint alleges that Diagostino failed to inform DiMartino that Dum was not an accountant, but a life insurance salesman for Somerset. (Id.)

DiMartino spoke with Dum several times, sometimes with Diagostino participating, to discuss tax-preferred financial planning, wealth increase strategies, and related matters for both DiMartino personally and LCC. (Id. ¶ 6.) During one of these conversations, Somerset, through Dum and/or Diagostino, recommended that LCC adopt the use of a Voluntary Employees' Benefit Association (VEBA) as a tax-advantaged vehicle to supplement DiMartino's wealth management plan. (Id.) A VEBA is an entity formed to provide welfare benefits to owners of businesses. (Id.)

On December 28, 2000, DiMartino and LCC executed a document entitled The Regional Employer's Assurance Leagues Voluntary Employees' Beneficiary Association Health and Welfare Benefit Plan Adoption Agreement ("Adoption Agreement") as part of an overall estate and wealth plan for DiMartino. (Dum Affidavit ¶ 4.) The Adoption Agreement created the Lafayette Cancer Care PC Voluntary Employees' Beneficiary Association Health and Welfare Benefit Plan (the "Plan"). (Id. ¶ 6.) As part of the Adoption Agreement, LCC agreed to become a member of a plan, consisting of other employers known as the Regional Employers Assurance Leagues, Region 5, Chapter A, Voluntary Employees Beneficiary Association Health and Welfare Plan. (Id. ¶ 8.) Penn Mont Benefit Services, Inc. is the plan administrator. (Intro. to Summ. Plan Description.) The plan provides life insurance benefits and qualifies as an employee benefit plan under ERISA, 29 U.S.C. § 1002. The life insurance for DiMartino was sold by Dum. (Diagostino Affidavit ¶ 7.)

The terms of the Adoption Agreement designated LCC as the employer with regard to the Plan under the applicable provisions of ERISA. (Dum Affidavit ¶ 9.) The Plan was funded through the purchase of a permanent variable life insurance policy from Western Reserve Life. (Id. ¶ 10.) DiMartino was covered by the Plan at the time this suit was filed. (Id. ¶ 11.) Life insurance was also purchased for other employees of LCC, who were eligible for coverage under the Plan. (Id.)

According to the Plaintiffs, Somerset told DiMartino that use of the VEBA would effectively enable DiMartino to "put more money away" for use after DiMartino stopped practicing medicine because the amount for the premium exceeded the cost of providing the death benefits under the life insurance policy. (Compl. ¶ 7.) DiMartino was informed that the excess premium amounts would accrue and grow inside the VEBA without being subject to tax. After the cash value increased, LCC would be able to stop using the VEBA, at which time DiMartino could withdraw the accrued and increased amount of cash, which would be taxed only at the time of actual distribution. (Id.) Somerset also informed DiMartino that LCC would, in the meantime, be able to deduct as a business expense the full amount of premiums paid for the life insurance policy, including the amount above the cost of providing death benefits. (Id.)

Additionally, the Plaintiffs contend that through the course of DiMartino's and Somerset's discussions, and while Somerset worked on DiMartino's and LCC's financial matters, Somerset continued to represent and reiterate to DiMartino that the use of the VEBA was a legal method of deferring taxable compensation and would also be a deductible business expense for LCC. (Compl. ¶ 8.) The Plaintiffs allege that during this time, "Somerset knew and has even affirmatively stated elsewhere that VEBAs are not qualified plans of deferred compensation for tax purposes." (Id.) Although Somerset had multiple opportunities between 2000 and 2002, the Plaintiffs contend that Somerset failed or refused to correct any misinformation. (Id. ¶ 12.) Furthermore, the Plaintiffs allege that they were unable to learn before February 2003 that they were subject to liability for unpaid income taxes and penalties because Somerset had total control over the relevant documents. (Id. ¶ 14.)

On March 28, 2003, DiMartino and LCC filed this lawsuit against Somerset, alleging fraud, negligence/malpractice, and conversion/theft. On May 9, 2003, Somerset filed a Notice of Removal, claiming that the United States District Court of the Southern District of Indiana has subject matter jurisdiction over the action because the Plaintiffs' claims are completely preempted by ERISA. On June 12, 2003, the Plaintiffs filed a Memorandum in Support of Objection to Removal and Motion to Remand for Lack of Subject Matter Jurisdiction. Somerset filed Defendant's Brief in Opposition to Remand on June 27, 2003. On July 21, 2003, Plaintiffs filed a Reply.

II. Standards

Somerset removed this action to federal court, alleging that the court has original jurisdiction under 28 U.S.C. § 1331 because the claims arise out of and relate to an employee welfare benefit plan, within the definition of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. Plaintiffs argue that removal is improper and seek to remand the action to state court, arguing this court lacks subject matter jurisdiction. The issue in this motion is whether the Plaintiffs' claims are completely preempted so that this court properly has subject matter jurisdiction over the action.

A. Federal Question

A state action may be removed to federal court where the federal district courts have original jurisdiction. Rogers v. Tyson Foods, Inc., 308 F.3d 785, 787 (7th Cir. 2002) (quoting 28 U.S.C. § 1441 (a)). If diversity of citizenship is not alleged, then the propriety of the removal depends on whether the district court has federal question jurisdiction. Id. (citing Seinfeld v. Austen, 39 F.3d 761, 763 (7th Cir. 1994)). In determining whether federal question jurisdiction exists, the court first examines the Plaintiffs' Complaint because "`[i]t is a long settled law that a cause of action arises under federal law only when the plaintiffs well-pleaded complaint raises issues of federal law.'" Speciale v. Seybold, 147 F.3d 612, 614 (7th Cir. 1998) (quoting Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987) (citations omitted)). Thus, it is the Plaintiffs' Complaint, not the Defendant's response, that controls the litigation. Id. (citing Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1482 (7th Cir. 1996)). Furthermore, "[a]ny doubt regarding jurisdiction should be resolved in favor of the states." Doe v. Allied-Signal, Inc., 985 F.2d 908, 911 (7th Cir. 1993) (citing Jones v. Gen. Tire & Rubber Co., 541 F.2d 660, 664 (7th Cir. 1976)).

B. Complete Preemption

The doctrine of complete preemption is a corollary to the well pleaded complaint rule. Rogers, 308 F.3d at 787 (citing Rice v. Panchal, 65 F.3d 637, 640 n.2 (7th Cir. 1995)). Complete preemption exists where "`Congress has so completely preempted a particular area that no room remains for any state regulation,'" making the Plaintiffs' Complaint "`necessarily federal in character.'" Id. (quoting Bastien v. AT&T Wireless Serv., Inc., 205 F.3d 983, 986 (7th Cir. 2000) (quoting Taylor, 481 U.S. at 63)). When an area of state law is completely preempted, the Plaintiffs' state law claim will be "recharacterized" as a federal claim so removal is proper, even if the Plaintiffs' Complaint does not state a basis for federal jurisdiction. Speciale, 147 F.3d at 615 (citations omitted). Thus, "the complete preemption doctrine `is not a preemption doctrine but rather a federal jurisdiction doctrine.'" Id. (quoting ...