HOLLINGSWORTH PAVING v. JEFFERSON-PILOT LIFE INS.

• Decision Date: 20 June 1996
• Docket Number: No. 95-2574.,95-2574.
• Parties: HOLLINGSWORTH PAVING, INC., AS PLAN ADMINISTRATOR OF THE HOLLINGSWORTH PAVING, INC., 401(k) PLAN, and Jimmy C. Hollingsworth, as Trustee of the Hollingsworth Paving, Inc., 401(k) Plan, Plaintiff, v. JEFFERSON-PILOT LIFE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Western District of Tennessee

929 F. Supp. 1097

HOLLINGSWORTH PAVING, INC., AS PLAN ADMINISTRATOR OF THE HOLLINGSWORTH PAVING, INC., 401(k) PLAN, and Jimmy C. Hollingsworth, as Trustee of the Hollingsworth Paving, Inc., 401(k) Plan, Plaintiff, v. JEFFERSON-PILOT LIFE INSURANCE COMPANY, Defendant.

No. 95-2574.

United States District Court, W.D. Tennessee, Western Division.

June 20, 1996.

Blachard E. Tual, Tual, Garrison & Tual, Memphis, TN, for Plaintiff.

Heather Webb, Richard H. Allen, Jr., Allen Scruggs, Sossaman & Thompson, Memphis, TN, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS

McCALLA, District Judge.

Before the Court is defendant Jefferson-Pilot Life Insurance Company's Motion To Dismiss for Failure To State a Claim, filed November 14, 1995. On January 26, 1996, the Court held a motion hearing in this matter, and directed plaintiffs to submit within ten days a supplemental response brief focusing on defendant's assertion that the case is a contract law issue and therefore, improperly raised under the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 829, as amended, 29 U.S.C. § 1001 et seq. On February 5, 1996, plaintiffs submitted Plaintiffs' Supplemental Memorandum Opposing Defendant's Motion To Dismiss, addressing only the preemption issue.¹ On February 12, 1996, defendant filed Defendant's Response To Plaintiffs' Supplemental Memorandum Opposing Defendant's Motion To Dismiss, in which it addressed only the preemption issue. For the reasons stated below, the Court GRANTS defendant's Motion to Dismiss.

Plaintiffs Hollingsworth Paving, Inc., as Plan Administrator of Hollingsworth Paving, Inc.'s 401(k) Plan (the Plan), and Jimmy C. Hollingsworth, as Trustee of the Plan, bring this action under ERISA § 409, 29 U.S.C. § 1109, for breach of fiduciary duty. Plaintiffs allege that defendant Jefferson-Pilot breached its fiduciary duty to plaintiff by soliciting waivers of certain employees' rights to participate in the Plan. Specifically, plaintiffs assert that Thomas Talbot, a salesman for Jefferson Pilot Life Insurance Company, approached plaintiff to purchase the Jefferson Pilot Life Insurance Company prototype 401(k) Plan, representing to plaintiffs that all administrative services would be provided by defendant. Defendant then solicited waivers from plaintiffs' employees, thereby rendering the prototype 401(k) Plan inapplicable to plaintiffs. As a result, the nature of the Plan was altered from a Standardized Prototype Agreement to a Non-Standardized Agreement.

The solicitation of the majority of waivers occurred in March 1994, before the effective date of the Plan, agreed by contract between the parties to be April 1, 1994. At least one waiver was solicited on May 14, 1994. The Summary Plan Description and the Prototype Plan contain no reference to any irrevocable waiver rights under the Plan.

The effect of the waivers was to: (1) permanently bar the signing employees from registering under the Plan; (2) increase the maximum contribution required for highly compensated employees; (3) increase Talbot's commission; and (4) alter the Plan from a Standardized Prototype Agreement to a Non-Standardized Agreement. Only a Non-Standardized Agreement must be submitted to the Internal Revenue Service (IRS) for a favorable determination before taking effect. Thus, the alteration in the Plan required plaintiffs to complete and send a qualification package to the IRS.² The waivers also made necessary the recalculation of the maximum contributions of participating employees.³

Defendant makes two interrelated arguments to support its motion. First, defendant argues that, in soliciting waivers, it was performing an entirely ministerial non-discretionary function and as such, plaintiffs cannot succeed under ERISA. Second, defendant argues that plaintiffs' allegations raise a purely contractual issue (whether plaintiffs received the plan for which they contracted), and as such, plaintiffs' claims are not subject to preemption under ERISA.

The Court first considers the preemption issue, as its resolution determines whether this case is properly brought under ERISA. ERISA is a comprehensive reform statute, "designed to promote the interests of employees and their beneficiaries in employee benefit plans." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490 (1983). Congress intended that ERISA be the "exclusive vehicle for actions by ERISA-plan participants and beneficiaries asserting improper processing of a claim for benefits." Pilot Life Insurance Company v. Dedeaux, 481 U.S. 41, 52, 107 S.Ct. 1549, 1555, 95 L.Ed.2d 39 (1987). Congress provided for wide preemption of state law under ERISA "because of the interstate character of employee benefit plans" and the need "to provide for a uniform source of law in the areas of vesting, funding, insurance and portability standards, for evaluating fiduciary conduct, and for creating a single reporting and disclosure system...." S.Rep. No. 93-127, 93rd Cong., 2d Sess., reprinted in 1974 U.S.C.C.A.N. 4838, 4871. Preemption of state law under ERISA is guided by the statute's structure and purpose. Shaw, 463 U.S. at 95, 103 S.Ct. at 2898-99 (quoting Fidelity Federal Savings & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 152-53, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664 (1982)); Morningstar v. Meijer, 662 F.Supp. 555 (E.D.Mich.1987).

ERISA's preemption clause provides that ERISA will "supersede any and all State laws" to the extent that those laws "relate to" any employee benefit plan that is subject to ERISA. ERISA § 514(a), 29 U.S.C. § 1144(a). State law, as used in ERISA, refers to "all laws, decisions, rules, regulations, or other State action having the effect of law, of any State." 29 U.S.C. § 1144(c)(1).

The United States Supreme Court has consistently recognized that ERISA's preemption clause is "conspicuous for its breadth." FMC Corp. v. Holliday, 498 U.S. 52, 58, 111 S.Ct. 403, 407, 112 L.Ed.2d 356 (1990) (holding that ERISA preempted application of Pennsylvania Motor Vehicle Financial Responsibility Law to employer's self-funded health care plan, in suit by employer seeking subrogation for amounts it had paid for medical expenses.) "A law `relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Shaw, 463 U.S. at 96-97, 103 S.Ct. at 2900 (holding that ERISA preempted New York's Human Rights Law and Disability Law, prohibiting employers from discriminating on the basis of pregnancy and requiring special benefits, in suit by employer seeking declaratory judgment). "The preemption clause is not limited to state laws specifically designed to affect employee benefit plans." Pilot Life, 481 U.S. at 47-48, 107 S.Ct. at 1553 (finding, in a suit against insurer of employer's group insurance policy, common law tort causes of action were preempted when the claims were based upon the wrongful denial of benefits under an employee benefit plan.) See Ingersoll-Rand v. McClendon, 498 U.S. 133, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990) (holding a wrongful discharge claim by a former employee preempted where plaintiff alleged that employer terminated employment for the sole purpose of avoiding pension benefit contributions); Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987) (finding a breach of contract claim by an employee against employer and plan to be preempted on the grounds that it is a suit by a beneficiary to recover benefits from a covered plan).

Similarly, the United States Court of Appeals for the Sixth Circuit has "repeatedly recognized that virtually all state law claims relating to an employee benefit plan are preempted by ERISA." Tassinare v. American National Insurance Co., 32 F.3d 220, 224 (6th Cir.1994) (finding breach of contract and intentional infliction of emotional distress claims brought by current and former employees against corporate director, based on directors' failure to secure pension benefits, to constitute state laws preempted by ERISA). If the "essence of such a state law claim is for the recovery of an ERISA plan benefit," then it affects the plan and the claim is preempted. Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272, 1276 (6th Cir.1991) (holding that health care provider's state law claims against administrator to recover benefits from plan for health care services preempted by ERISA). See also, In re General Motors Corp., 3 F.3d 980, 985 (6th Cir.1993) (finding that employees' claims for breach of contract, invasion of privacy, and misrepresentation, based on employer's failure to keep utilization of employee assistance program for drug and alcohol abuse treatment confidential, were preempted by ERISA where program was a benefit provided to employees and funded by employer); Perry v. P*I*E Nationwide, Inc., 872 F.2d 157 (6th Cir.1989), cert. denied 493 U.S. 1093, 110 S.Ct. 1166, 107 L.Ed.2d 1068 (1990) (finding that employee's claims for breach of fiduciary duty and lack of consideration for pay cut taken to participate in benefit plan were preempted by ERISA).⁴ Courts also generally find preemption where the relationship to ERISA is indirect, but the underlying state claim is linked to benefits under the plan.⁵

Despite the unusual breadth of ERISA's preemptive force, not all state law claims are preempted. Specifically, "some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law `relates to' an ERISA plan." Shaw, 463 U.S. at 100, n. 21, 103 S.Ct. at 2901, n. 21. Considerations relevant to making this determination are the following: (1) whether the state law represents a traditional exercise of state authority; (2) whether the parties involved are principal ERISA parties such as the employer, the plan, the plan fiduciaries, and the beneficiaries, or, in contrast, whether the parties are outside parties; and (3) w...