Felton v. Unisource Corp., 90-15693

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Citation940 F.2d 503
Docket NumberNo. 90-15693,90-15693
Parties57 Fair Empl.Prac.Cas. 209, 56 Empl. Prac. Dec. P 40,905 Don W. FELTON; Linda Felton, husband and wife, Plaintiffs-Appellants, v. The UNISOURCE CORPORATION; Paper Corporation of America, a Delaware corporation; ALCO Standard Corporation, an Ohio corporation, Defendants-Appellees.
Decision Date31 July 1991

Keith B. Forsyth, Cruse, Firetag & Bock, Phoenix, Ariz., for plaintiffs-appellants.

Tibor Nagy, Jr., and Gerard Morales, Snell & Wilmer, Phoenix, Ariz., for defendants-appellees.

Appeal from the United States District Court for the District of Arizona.

Before HUG, POOLE and FERGUSON, Circuit Judges.

FERGUSON, Circuit Judge:

Plaintiffs-appellants Don and Linda Felton appeal the district court's grant of summary judgment for defendants-appellees Unisource, et al., based on its findings that (1) their state law claims are preempted by ERISA and (2) any claim under ERISA is barred by the statute of limitations. 739 F.Supp. 1388. We hold that the district court correctly found that the Feltons' state law claims were preempted by ERISA, but erred in its determination of the applicable statute of limitations.

I.

Don Felton was terminated by Unisource in October 1986, after over eight years of employment. Prior to his discharge, he was a systems and procedure manager for Unisource, a company in the business of selling paper products. After developing lung cancer, Felton took a medical leave of absence for surgery in March 1986. Unisource, which is self-insured, paid approximately $39,000.00 for his surgery and related lung cancer treatment. Felton returned to work on May 1, 1986. About five months later, he was terminated. The Feltons contend that Unisource fired Don Felton in order to avoid paying him medical insurance benefits after he contracted lung cancer.

On November 18, 1986, and January 7, 1987, Felton filed two claims with the Arizona Civil Rights Division ("ACRD") of the State Attorney General, alleging age and handicap discrimination under the Arizona Civil Rights Act ("ACRA"), A.R.S. Sec. 41-1461, et seq. On November 10, 1987, Don and Linda Felton filed suit against Unisource in state court alleging breach of employment contract, wrongful termination against public policy and violation of the ACRA. 1

On October 16, 1988, the ACRD issued its Findings of Fact and Conclusions of Law regarding Felton's claims under the ACRA. 2 It concluded that Unisource had discriminated against Don Felton based on a handicap, lung cancer. The ACRD found that Felton had established a prima facie case of discrimination by alleging that (1) he was a member of a protected class, (2) his employment was terminated due to his handicap and age, and (3) Unisource was motivated to terminate him due to concern that it might be liable for further medical benefits and early retirement pay.

Although Unisource alleged a legitimate business reason for the termination, i.e., that the layoff was part of a work-force reduction, the ACRD found that Felton had shown that Unisource's explanation was merely a pretext for handicap discrimination. The ACRD found that the evidence and testimony presented on behalf of Unisource "was inconsistent, contradictory and lacked credence." It concluded that there was "reasonable cause" to believe that Felton had been terminated due to Unisource's desire to avoid future health insurance payments relating to his lung cancer. The ACRD invited Unisource to enter into settlement negotiations.

On November 30, 1988, Unisource petitioned for removal of the Feltons' state court action to federal court, alleging that the claims were preempted by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Secs. 1001-1461. 3 Removal was granted. 4 The Feltons' subsequent motion to have the case remanded was denied. On November 7, 1989, Unisource filed a motion for summary judgment contending that the Feltons' claims were barred by the statute of limitations. The district court granted this motion in January 1990, concluding that ERISA preempted the state law claims, that a one-year statute of limitations applied to the ERISA claim, and, therefore, the action was barred by the statute of limitations. 5 The Feltons timely appealed.

II.

A threshold issue is whether the district court had subject matter jurisdiction over the Feltons' complaint. Removal of a case from state to federal court is a question of federal subject matter jurisdiction which is reviewed de novo. Emrich v. Touche Ross & Co., 846 F.2d 1190, 1194 (9th Cir.1988); Ethridge v. Harbor House Restaurant, 861 F.2d 1389, 1393 (9th Cir.1988). This court may raise the question sua sponte. Galvez v. Kuhn, 933 F.2d 773, 775 n. 4 (9th Cir.1991). The general rule governing removal of actions from the state court to federal court is that for a district court to have federal question removal jurisdiction, a federal cause of action must appear on the face of the complaint. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 1546, 95 L.Ed.2d 55 (1987); Ethridge, 861 F.2d at 1394. This well-pleaded complaint rule allows the plaintiff to "avoid removal simply by relying exclusively on [a] state law claim," when both state and federal grounds exist. Ethridge, 861 F.2d at 1395 (citation omitted).

Therefore, because it is a defense and does not appear on the face of a complaint generally federal preemption will not support removal from state to federal court. Metropolitan Life, 481 U.S. at 63, 107 S.Ct. at 1546.

Thus, it is now settled law that a case may not be removed to federal court on the basis of a federal defense, including the defense of pre-emption, even if the defense is anticipated in the plaintiff's complaint, and even if both parties concede that the federal defense is the only question truly at issue.

Caterpillar, Inc. v. Williams, 482 U.S. 386, 393, 107 S.Ct. 2425, 2430, 96 L.Ed.2d 318 (1987) (emphasis in original) (citation omitted). However, the Court has also explained that, "[o]ne corollary of the well-pleaded complaint rule ... is that Congress may so completely preempt a particular area that any civil complaint raising this select group of claims is necessarily federal in character." Metropolitan Life, 481 U.S. at 63-64, 107 S.Ct. at 1546. "Jurisdictional and preemption questions are thus tightly intertwined." Galvez, 933 F.2d at 776.

In Metropolitan Life, the plaintiff's complaint alleged only state common law causes of action which were completely preempted by ERISA. Id., 481 U.S. at 64, 107 S.Ct. at 1546. The Court noted that ERISA preemption, without more, does not automatically allow for removal to federal court. Id. However, after examining the legislative history of the ERISA civil enforcement provisions, the Court held that "Congress has clearly manifested an intent to make causes of action within the scope of the civil enforcement provision of Sec. 502(a) removable to federal court." Id. at 66, 107 S.Ct. at 1548.

Here, the Feltons' complaint alleged both a state common law wrongful termination claim and a claim of handicap discrimination under ACRA. The complaint contained no factual allegations regarding why the termination was wrongful, simply that it was against public policy and violated the ACRA. Hence, the complaint did not state an ERISA claim on its face.

The Feltons moved to remand the action for lack of removal jurisdiction. The motion was denied. They did not seek an interlocutory appeal following the denial of the motion to remand. By failing to do so, the Feltons have failed to preserve their objection to the removal. See Sorosky v. Burroughs Corp., 826 F.2d 794, 799 (9th Cir.1987). This case having proceeded to summary judgment on the merits, the jurisdictional inquiry becomes whether the district court would have had jurisdiction had the case originally been filed in the federal court. Id. at 798; Grubbs v. General Electric Credit Corp., 405 U.S. 699, 702, 92 S.Ct. 1344, 1347, 31 L.Ed.2d 612 (1972).

At Don Felton's deposition, he stated that the claims arose out of Unisource's desire to avoid medical insurance payments to him. The Feltons have not offered any other theories in support of their claims. At the summary judgment stage of the proceeding, it is appropriate to take into consideration Don Felton's deposition testimony, which makes it clear that the basis for the claims in the complaint is that Unisource discharged Felton because it desired to avoid medical insurance payments to him. We then look to see if the action, as thus interpreted, is completely preempted.

The Feltons' claims are completely preempted by ERISA because their federal cause of action arises under either Sec. 502(a)(1)(B) or Sec. 502(a)(3). See 29 U.S.C. Secs. 1132(a)(1)(B); 1132(a)(3). These sections are the same as those considered by the Supreme Court in Metropolitan Life and authorize civil actions brought to enforce a plaintiff's rights as set forth in other sections of the Act. 6 While the Feltons' complaint did not state a cause of action under ERISA on its face, Don Felton's deposition testimony explained the factual basis for the complaint and made it apparent that the action falls into the complete preemption area of ERISA under the Metropolitan Life analysis. Thus, the action could originally have been brought in federal court. The federal district court thus had jurisdiction under the analysis of Grubbs.

III.

We review de novo whether a state law claim is preempted by federal law. Operating Engineers Pension Trust v. Wilson, 915 F.2d 535, 537 (9th Cir.1990). A grant of summary judgment is reviewed de novo as well. Kruso v. International Telephone & Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir.1989), cert. denied, --- U.S. ----, 110 S.Ct. 3217, 110 L.Ed.2d 664 (1990). In addition, a ruling on the appropriate statute of limitations is a question of federal law which...

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