Indep. Distrib. Co-Op. v. Advanced Ins. Brokerage

• Decision Date: 29 May 2003
• Docket Number: No. IP 01-0737-C-B/G.,IP 01-0737-C-B/G.
• Citation: 264 F.Supp.2d 796
• Parties: INDEPENDENT DISTRIBUTORS COOPERATIVE USA, Plaintiff, v. ADVANCED INSURANCE BROKERAGE OF AMERICA, INC., d/b/a Advanced Insurance Administration, Defendant.
• Court: U.S. District Court — Southern District of Indiana

Page 796

264 F.Supp.2d 796

INDEPENDENT DISTRIBUTORS COOPERATIVE USA, Plaintiff, v. ADVANCED INSURANCE BROKERAGE OF AMERICA, INC., d/b/a Advanced Insurance Administration, Defendant.

No. IP 01-0737-C-B/G.

United States District Court, S.D. Indiana, Indianapolis Division.

May 29, 2003.

James R Fisher, Ice Miller, Indianapolis, IN, for Plaintiff.

Pat Henry, Little Rock, AR, pro se.

Thomas E Satrom, Locke Reynolds LLP, Indianapolis, IN, for Defendant.

ENTRY DENYING DEFENDANT'S MOTION TO DISMISS

BARKER, District Judge.

This matter comes before the court on Defendant Advanced Insurance Brokerage of America, Inc.'s Motion for Summary Judgment, or in the alternative, to Dismiss. Plaintiff Independent Distributors Cooperative-USA filed suit against Defendant alleging Indiana state law claims of fraud and breach of contract. Defendant argues that Plaintiff's claims are preempted by ERISA and that they are without merit because they are based on contract provisions or facts that do not exist. In the alternative, Defendant moves to dismiss Plaintiffs complaint for failure to state a claim upon which relief may be granted. After filing this motion, Defendant filed an additional and interrelated Motion for Summary Judgment, which only recently was fully briefed by the parties. Therefore, in this entry, we address only Defendant's arguments in favor of dismissal, namely, that Plaintiffs claims are preempted by ERISA and that Plaintiff has failed to state a claim upon which relief may be granted, and reserve for a later date consideration of Defendant's other grounds for summary relief. For the reasons set forth below, we conclude that Plaintiffs claims are not preempted by ERISA, and we DENY Defendant's Motion to Dismiss.

Factual Background¹

Plaintiff, Independent Distributors Cooperative USA ("IDC"), an Indiana corporation, is a cooperative comprised of independent entities in the industrial supply business. Compl. ¶¶ 1, 8. IDC was the plan administrator and plan sponsor of an employee welfare benefit plan ("the Plan"), which became effective January 1, 1996. Compl., Ex. A, § 6.A; see also ERISA §§ 3(16)(A)-(B) (defining the terms plan administrator and plan sponsor). IDC terminated the Plan on December 31, 1997. An October 1997 audit of the Plan revealed that a funding shortfall had rendered the Plan financially untenable, in part because IDC did not have the resources to maintain the Plan as a Multiple Employer Welfare Arrangement ("MEWA"). Pl.'s Resp. to Def.'s Mot. for Summ. J., or in the alternative, to Dismiss at 3-4. Because Defendant, Advanced Insurance Brokerage of America, Inc. ("AIA"), does not argue in its Motion to Dismiss that the Plan is not an MEWA, we assume for purposes of AIA's motion that the Plan is an MEWA. Compl. ¶ 21; Ex. A.²

IDC retained Pat Henry ("Henry"), a citizen of Arkansas, to assist IDC in locating and employing a qualified expert to design a workable group health insurance plan for IDC's member companies. Compl. ¶¶ 2, 10. Henry identified AIA, an Arkansas corporation, as an expert in designing appropriate group health insurance plans for business entities. Id ¶¶ 3, 14. AIA agreed to develop a group health insurance program for IDC. Id ¶ 15. On October 20, 1995, Henry presented the benefits of AIA's proposed plan to IDC. Id. ¶¶ 2, 18. IDC argues that Henry was "a paid agent and salesman for AIA" when he made this presentation to IDC, a characterization that AIA vigorously disputes. Id. ¶ 23; Answer ¶ 23. IDC alleges further that Henry and AIA knew or should have known that the plan they proposed was an MEWA and as such was infeasible for IDC and its members. Henry, however, informed IDC that AIA had confirmed to him that the proposed plan was not an MEWA, and therefore, that it would not be subject to any of the state regulations applicable to MEWAs, based on the opinion of the attorneys for the reinsurer that AIA had selected to provide stop loss coverage for the proposed plan. Compl. ¶¶ 19-23. In fact, apparently no such legal opinion was ever rendered. Compl. ¶¶ 24-25. Relying on Henry's allegedly fraudulent representations as a representative of AIA, IDC adopted the proposed plan on January 26, 1996. Compl. ¶¶ 26-28.

On January 16, 1996, IDC and AIA entered into an Administrative Services Agreement ("1996 Agreement"). Compl. ¶ 32.³ Section 1.A.1 of the 1996 Agreement provides, in relevant part: "The Administrator [AIA] shall provide I.D.C. with the following services as required for the administration and operation of the Plan.... A. 1. Recommendations as to initial development and design of the Plan and Plan Document and further revisions thereof." IDC alleges that AIA's recommended design, in which the Plan qualified as an MEWA, constituted a breach of contract.

From the time of the Plan's initial implementation, IDC contends that the Plan as designed by AIA was never in compliance with all applicable state and federal laws and regulations governing MEWAs. Compl. ¶ 36. Prior to renewal of the 1996 Agreement, the reinsurer informed AIA that it believed the Plan was, in fact, an MEWA, and subsequently, it declined to renew the stop loss insurance for the Plan because it was unwilling to provide coverage for what it perceived to be an unlawful plan. Id. ¶ 42. AIA did not inform IDC that the reinsurer believed that the Plan was an MEWA. Id. ¶ 43. IDC alleges that AIA's withholding of this information violated the language of Section 1.A.1, which states that AIA will recommend to IDC future revisions of the Plan. In addition, IDC contends that AIA's failure to disclose the reinsurer's determination that the Plan was an MEWA violated its duty to recommend termination of the Agreement. Section 12.A of the 1996 Agreement provides in relevant part: "If ... the existing law is interpreted to prohibit the continuance of this Agreement, the Agreement shall terminate on the date required by such law or interpretation." Compl. Ex. A, § 12.A. Therefore, IDC argues that when the reinsurer alerted AIA of its belief that the Plan was an MEWA, AIA had a duty to terminate the Agreement. AIA, however, proposed amendments to the 1996 Agreement and Plan documents, which purported to disclaim its prior representations and those of its agent, Henry. Compl. ¶ 44.

The 1996 Agreement also established AIA as the third-party administrator of the Plan. As such, AIA was responsible for making and submitting cost projections of Plan benefit payments and administrative costs pursuant to Sections 1.A.2 and 1.B.1(a) and (c), which provide as follows: "The Administrator [AIA] shall provide I.D.C. with the following services as required for the administration and operation of the Plan.... A. 2. Cost projections of benefit and administration..... B. 1. Preparations of such accounting reports as are needed in the financial management and administrative control of the plan, such as: a. projections of initial and renewal unit cost and total cost; ... c. estimates of incurred but unpaid claim liabilities." Compl. Ex. A., §§ 1.A.2 and 1.B.1(a) and (c).

In April of 1997, AIA became aware that the funding levels of the Plan were insufficient and that IDC would need to make large assessments to cover the impending shortfalls. Compl. ¶ 55. In June of 1997, AIA warned IDC of an $80,000 funding shortfall; however, by August of 1997, the actual shortfall exceeded $800,000. The Plan was financially unsustainable. Id. ¶¶ 56-61. IDC also alleges that AIA, in anticipation of IDC's discovery of the Plan's legal and financial deficiencies, stopped processing claims, but continued to collect administrative fees for work not performed. Id. ¶ 62.

IDC terminated its benefit plan as of December 31, 1997, because the regulatory and structural burden imposed upon an MEWA with member-employers in multiple states was prohibitively expensive and impractical. Pl.'s Resp. to Def.'s Mot. for Summ. J., or in the alternative, to Dismiss at 4. As a result of AIA's alleged fraudulent misrepresentations and breaches of contract, IDC incurred $1,000,000 in compliance, termination, and litigation expenses, above the cost of providing insurance to plan members. Compl. ¶¶ 29, 30, 49-51. IDC filed its Complaint in this court on August 29, 2001.

Legal Analysis

Motion to Dismiss Standard

AIA moves to dismiss this action, arguing that IDC's Indiana state law claims of fraud and breach of contract are preempted by ERISA, or in the alternative, that IDC alleges facts insufficient to state a claim of fraud and breach of contract. A pleading is sufficient if it contains (1) a short and plain statement of the grounds upon which the court's jurisdiction depends, (2) a short and plain statement of the claim showing that the pleader is entitled to relief, and (3) a demand for judgment for the relief the pleader seeks. Fed.R.Civ.P. 8(a); South Austin Coalition Cmty. Council v. SBC Communications Inc., 274 F.3d 1168,1171 (7th Cir.2001). These statements must simply "give the defendant fair notice of what the plaintiffs claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

Such notice pleading "relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims." Swierkiewicz v. Sorema N. A., 534 U.S. 506, 512, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002). In evaluating the motion to dismiss, we treat all well-pleaded factual allegations as true, and we construe all inferences that reasonably may be drawn from those facts in a light most favorable to the nonmoving party. Fed.R.Civ.P. 12(b)(6); Szumny v. Am. Gen. Fin., 246 F.3d 1065, 1067 (7th Cir.2001). In addition, the burden rests upon AIA as the moving party to show that the plaintiff cannot prove any facts that would support his claim for relief. Northern Ind. Gun & Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449, 452 (7th Cir.1998); Gustafson v. Jones, 117 F.3d 1015, 1017...