Isaac v. Life Investors Ins. Co. of America

• Decision Date: 31 August 1990
• Docket Number: No. CIV-1-89-592.,CIV-1-89-592.
• Citation: 749 F. Supp. 855
• Parties: Hugh ISAAC, Evelyn Isaac and Hugh Isaac, as next friend of Tomekia Isaac, Plaintiffs, v. LIFE INVESTORS INSURANCE COMPANY OF AMERICA, Earl Moats, Paul Jowers, Nicholas W. Humble, A-Z, Whose Identities Are Unknown To The Plaintiffs At This Time But Who Will Be Added As Defendants As Their Identities Are Ascertained, and Johnny White, Defendants.
• Court: U.S. District Court — Eastern District of Tennessee

749 F. Supp. 855

Hugh ISAAC, Evelyn Isaac and Hugh Isaac, as next friend of Tomekia Isaac, Plaintiffs, v. LIFE INVESTORS INSURANCE COMPANY OF AMERICA, Earl Moats, Paul Jowers, Nicholas W. Humble, A-Z, Whose Identities Are Unknown To The Plaintiffs At This Time But Who Will Be Added As Defendants As Their Identities Are Ascertained, and Johnny White, Defendants.

No. CIV-1-89-592.

United States District Court, E.D. Tennessee, S.D.

August 31, 1990.

W. Cameron Parsons, Parsons & Hall, Tuscaloosa, Ala., Jerry H. Summers, Summers, McRae & Wyatt, Chattanooga, Tenn., for plaintiffs.

Charles W. Dooley, Leitner, Warner, Moffitt, Williams, Dooley, Carpenter & Napolitan, Chattanooga, Tenn., for Life Investors.

Kenneth R. Starr, Luther, Anderson, Cleary & Ruth, Chattanooga, Tenn., for Nicholas Humble.

MEMORANDUM

EDGAR, District Judge.

This matter is before the Court upon the motion of defendant Life Investors Insurance Company of America ("Life Investors") to dismiss and the motion of defendant Nicholas W. Humble ("Humble") to dismiss. For the reasons set forth herein, the motions will be GRANTED IN PART and DENIED IN PART.

The plaintiffs in this action are a minor child and her parents. The parents brought suit on their own behalf and on behalf of their daughter in a four count complaint filed in Alabama state court. The defendants removed this action to the United States District Court, Northern District of Alabama, Western Division, based not only on diversity of citizenship, but also federal question, asserting federal preemption under the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq. ("ERISA"). The case was subsequently transferred to this Court pursuant to 28 U.S.C. § 1404(a). See Court File Nos. 3, 8 and 25. The plaintiffs seek both compensatory and punitive damages from the defendants incurred as a result of misrepresentation and fraud. The plaintiffs claim that the defendants, either individually or through agents, fraudulently induced them to terminate their prior health insurance, which covered the medical expenses associated with their daughter's scoliosis, and enroll in a health insurance plan offered to the plaintiffs through Hugh Isaac's employer, Vanco, Inc. The plaintiffs claim that the defendants, either individually or through agents, misrepresented that the policy offered through Life Investors would provide for medical expenses incurred by the daughter's scoliosis. Instead, the plaintiffs claim that Life Investors has denied the claim, except for $500.00, listing the child's preexisting condition as the reason.

The defendants in this action have filed motions to dismiss on various grounds. Defendant Life Investors argues (1) counts one, two and three of the complaint, by their terms, do not apply to it, (2) no private right of action exists for an alleged violation of Ala.Code Ann. § 27-12-6, and (3) ERISA preempts any and all claims set forth in the complaint. Defendant Humble likewise asserts arguments based upon no private right of action under Ala.Code Ann. § 27-12-6 and ERISA preemption.

Since this action was properly removed to federal court based upon diversity of citizenship, this Court need not address whether raising federal preemption under ERISA alone would be a sufficient basis for removal.

The issues before the Court, however, are multi-fold: (1) which causes of action are asserted against which defendants; (2) do all of the Alabama statutes cited by the plaintiffs even provide for a private right of action; (3) if so, are those causes of action then preempted under ERISA as "relating to" an ERISA plan (29 U.S.C. § 1144(a)); and (4) in determining the ERISA preemption issue, does this Court apply Eleventh or Sixth Circuit precedent?

1. Cause of Action

In counts one, two and three of the amended complaint (Court File No. 53), the plaintiffs allege intentional misrepresentation, reckless misrepresentation and negligent misrepresentation. The plaintiffs claim these misrepresentations were made by defendant Earl Moats. These counts do not expressly refer to defendant Life Investors. In the beginning of the complaint, however, the plaintiffs allege that Earl Moats was and is Life Investor's enrolling agent and "was acting as agent and/or employee of the other defendants." As a general rule, an agent and/or employee of a corporation may bind the corporation by his acts and declarations made while acting within the scope of his authority as an agent, or within the scope of his duties as an employee. See Potomac Leasing Co. v. Bulger, 531 So.2d 307 (Ala. 1988). (Any misrepresentation of an agent may be imputed to his principal.) Counts one, two and three, by their terms, do apply to Life Investors. On that issue, therefore, Life Investor's motion to dismiss will be DENIED.

2. Private Right of Action

In the present case, the plaintiffs allege in each count of their complaint that the defendants violated Alabama statutory law, in that they misrepresented the coverage provisions of the ERISA plan provided by Life Investors through Hugh Isaac's employer, thereby inducing them to terminate their old health insurance and enroll in the ERISA plan. The two provisions alleged to have been violated by the defendants are:

Misrepresentations of a material fact made willfully to deceive, or recklessly without knowledge, and acted on by the opposite party, or if made by mistake and innocently and acted on by the opposite party, constitute legal fraud.

Ala.Code Ann. § 6-5-101 (1975).

Fraud by one, accompanied with damage to the party defrauded, in all cases gives a right of action.

Ala.Code Ann. § 6-5-100 (1975).

No person shall make or issue, or cause to be made or issued, any written or oral statement misrepresenting or making misleading incomplete comparisons as to the terms, conditions or benefits contained in any policy for the purpose of inducing, or attempting or intending to induce, the policy holder to lapse, forfeit, surrender, retain, exchange or convert any insurance policy.

Ala.Code Ann. § 27-12-6 (1977) (Alabama "twisting" statute).

Alabama's "twisting" statute, Ala.Code Ann. § 27-12-6 (1977), has been expressly held not to create a private cause of action. Farlow v. Union Central Life Ins. Co., 874 F.2d 791, 794-96 (11th Cir.1989). The defendants' motions to dismiss plaintiffs' claims based on this statute as set out in count four of their complaint will, therefore, be GRANTED. The plaintiffs, however, do state claims based upon the more general fraud statute, Ala.Code Ann. §§ 6-5-100 et seq. (1975), which expressly provides for a private right of action. The Court, therefore, must determine whether ERISA preempts these state law claims.

3. ERISA Preemption

ERISA was meant to create a uniquely federal framework dealing with employee pension and benefit plans. Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 1906, 68 L.Ed.2d 402 (1980); Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208, 1215 (8th Cir.1981), cert. denied, 454 U.S. 968, 102 S.Ct. 512, 70 L.Ed.2d 384 and 454 U.S. 1084, 102 S.Ct. 641, 70 L.Ed.2d 619 (1981). ERISA imposes a variety of substantive requirements relating to participation, funding and vesting upon pension and benefit plans. Alessi, 451 U.S. at 525, 101 S.Ct. at 1907; Dependahl, 653 F.2d at 1215. It provides a comprehensive framework governing the administration of private employee pension and benefit plans. Id. It also establishes various uniform procedural standards concerning reporting, disclosure and fiduciary responsibility for both pension and benefit plans. 29 U.S.C. §§ 1021 et seq. It does not, however, regulate the substantive content of these plans. Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 732, 105 S.Ct. 2380, 2385, 85 L.Ed.2d 728 (1985). ERISA thus contains almost no federal regulation of the actual terms of benefit plans. To bolster the federal regulation of these plans, Congress provided a broad exemption clause negating almost all common law causes of action. The preemption provision declares:

Except as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and non-exempt under section 1003(b) of this title.

§ 514(a) of ERISA, 29 U.S.C. § 1144(a) (emphasis added).

The preemption statute is to be given a broad interpretation to effectuate the purposes of the overall ERISA framework:

To interpret section 514(a) to preempt only state laws specifically designed to affect employee benefit plans would be to ignore the remainder of section 514. It would have been unnecessary to exempt generally applicable state criminal statutes from pre-exemption in section 514(b), for example, if section 514(a) applied only to state laws dealing specifically with ERISA plans.

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98, 103 S.Ct. 2890, 2900-01, 77 L.Ed.2d 490 (1983). The Shaw court further held that:

Nor, given the legislative history, can section 514(a) be interpreted to preempt only state laws dealing with the subject matters covered by ERISA such as reporting, disclosure and fiduciary responsibility.

Id. Courts have found this broad preemption under section 514(a) because ERISA provides a "full range of legal and equitable remedies." Authier v. Ginsberg, 757 F.2d 796, 802 (6th Cir.), cert. denied, 474 U.S. 888, 106 S.Ct. 208, 88 L.Ed.2d 177 (1985).

In order to find preemption, therefore, a court must find that a state law cause of action "relates to" an ERISA plan. The Supreme Court declared that a law would "relate to" an employee benefit plan in those circumstances where "it has a connection with or reference to such a plan." Id. 463 U.S. at 96-97, 103 S.Ct. at 2899-2900. The Supreme Court further illuminated the extent of federal preemption when it stated:

ERISA

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