Krupp v. Lincoln University

• Decision Date: 10 April 1987
• Docket Number: Civ. A. No. 85-1724.
• Parties: Steven KRUPP, et al. v. LINCOLN UNIVERSITY, et al. v. The TRAVELERS INSURANCE COMPANIES.
• Court: U.S. District Court — Eastern District of Pennsylvania

663 F. Supp. 289

Steven KRUPP, et al. v. LINCOLN UNIVERSITY, et al. v. The TRAVELERS INSURANCE COMPANIES.

Civ. A. No. 85-1724.

United States District Court, E.D. Pennsylvania.

April 10, 1987.

Joseph W. Marshall, III, Goldman, Koplin & Marshall, P.C., Philadelphia, Pa., for plaintiffs.

Joseph F. Moore, Jr., John E. Quinn, Reed, Smith, Shaw & McClay, Philadelphia, Pa., for Lincoln University, et al.

Robert M. Landis, Kathleen Milsark, William R. Herman, Philadelphia, Pa., for Travelers Ins. Co.

MEMORANDUM

LOUIS H. POLLAK, District Judge.

In this action, Steven and Deborah Krupp and their daughter Joanna Krupp have sued Lincoln University for terminating Joanna Krupp's coverage under Lincoln's self-insured group health plan, in which her father is enrolled as an employee of Lincoln. Lincoln terminated Joanna's coverage when it determined that she was ineligible because she had been disabled from birth. Denying any liability to the Krupps, Lincoln has filed a third-party complaint against the Travelers Insurance Companies and Massachusetts Mutual Life Insurance Company, the two insurance carriers that contracted with Lincoln consecutively to provide group health coverage for Lincoln's employees before Lincoln converted to self-insurance. Lincoln claims that, if it is found liable to the Krupps, responsibility for the continuing payment of Joanna's medical bills should be shouldered by these insurance companies, whose alleged errors in applying the terms of their insurance contracts led to the initial payment of benefits to Joanna. Lincoln's claim against Massachusetts Mutual was subsequently dismissed, but the claim against Travelers remains alive.

Before the court are two motions to dismiss: Lincoln has filed a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure, in which Travelers has joined, and Travelers has filed a separate motion to dismiss the third-party complaint for failure to state a claim upon which relief can be granted under Rule 12(b)(6). For the reasons stated below, both motions will be denied.

I. Lincoln's Motion to Dismiss for Lack of Jurisdiction

Plaintiffs are suing Lincoln for violation of the Employee Retirement Income Security Act of 1974 ("ERISA" or "the Act"), 29 U.S.C. §§ 1001 et seq. and the terms of the collective bargaining agreement between Lincoln and the Lincoln University Chapter of the American Association of University Professors ("LUC-AAUP"). Plaintiffs predicate federal question jurisdiction, pursuant to 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e), on its ERISA claim and allege pendent jurisdiction over the contract claims presented in Count II of its complaint. Defendant Lincoln's motion to dismiss argues that the federal courts lack subject matter jurisdiction over plaintiffs' claim because ERISA is inapplicable to Lincoln's health care plan which, Lincoln contends, is a "governmental plan" as defined by the Act. Conceding that ERISA exempts governmental plans from the Act's provisions, 29 U.S.C. § 1003(b), plaintiffs dispute Lincoln's conclusion that the plan in question is a governmental plan within the meaning of the Act.

Plaintiffs also suggest that it is somehow relevant that, up until the time plaintiffs' action was filed, Lincoln believed and represented that its plan was covered by ERISA. Because the opportunity to challenge subject matter jurisdiction can never be waived by a party's actions or representations, see Insurance Corporation of Ireland, Ltd. v. Compagnie Des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 2104, 72 L.Ed.2d 492 (1982), this court will only consider defendant's current position on the applicability of ERISA.

ERISA states that the provisions in question here "shall not apply to any employee benefit plan if ... such a plan is a governmental plan (as defined in section 1002(32) of this title)." 29 U.S.C. § 1003(b). The Act defines governmental plans as those plans

established or maintained for it employees by the Government of the United States, by the governments of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.

29 U.S.C. § 1002(32). The Lincoln University Commonwealth Act ("The Commonwealth Act"), 24 P.S. § 2510-401 et seq., provides in pertinent part:

It is hereby declared to be the purpose of this act to extend Commonwealth opportunities for higher education by establishing Lincoln University as an instrumentality of the Commonwealth to serve as a State-related institution in the Commonwealth system of higher education.

24 P.S. § 2510-402(7).

Defendant points to the language of the Commonwealth Act and the language of ERISA to argue that the two acts, read together, exempt Lincoln from the terms of ERISA. Defendant's strongest argument is based on this coincidence of language, but the fact that the term "instrumentality" of the government appears in both statutes does not mean that the word is given the same meaning in both. Indeed, the context in which the word appears in the statutes and subsequent court interpretations of the statutes suggest that "instrumentality," a word broadly defined when divorced from a context, means two different things in the Commonwealth Act and in ERISA.

The Pennsylvania Legislature enacted the Commonwealth Act to allow Pennsylvania to provide greater financial support to Lincoln University than it could under prior law. While Lincoln's status under this Act has not yet been considered by the Pennsylvania courts, a nearly identical statute, the Temple University Commonwealth Act, 24 P.S. § 2510-2, has been interpreted by both the Pennsylvania Supreme Court and the Third Circuit. In Mooney v. Board of Trustees of Temple University of the Commonwealth System of Higher Education, 448 Pa. 424, 292 A.2d 395 (1972), the Pennsylvania Supreme Court determined, after a lengthy consideration of each provision of the Temple Commonwealth Act, that that Act had not transformed Temple into a state agency subject to Pennsylvania's Right to Know Act, 65 P.S. § 66.1 et seq. The court concluded that the language of the Act stating that Temple "shall continue as a corporation for the same purposes as, and with all rights and privileges heretofore granted to Temple University," 24 P.S. § 2510-3,

reveals an express legislative intent to preserve Temple's status as a non-profit corporation chartered for educational purposes. The receipt by Temple of increased state financial aid no more transforms Temple into a state "agency" than the receipt of federal funds can make Temple an agency of the federal government. A review of the Temple University-Commonwealth Act further supports our conclusion.

292 A.2d at 399.

The Third Circuit, referring to Mooney as "an authoritative interpretation of the pertinent state statute," reached a similar conclusion in determining that Temple was not a "political subdivision" within the meaning of § 103(a)(1) of the Internal Revenue Code, 26 U.S.C. § 103(a)(1), and hence that a bank was not exempt from federal income taxation on interest paid by Temple to the bank on moneys borrowed by the university. Philadelphia National Bank v. United States, 666 F.2d 834, 839 (3d Cir.1981). After reviewing Temple's organizational and administrative structure, the Third Circuit concluded that "the method utilized by the legislature to establish a state relationship with Temple is unique and the resulting body is not the same as a traditional authority or political subdivision." Id. at 838.

The Lincoln University-Commonwealth Act, like the Temple Act, provides that Lincoln "shall continue as a corporation for the same purposes as, and with all rights and privileges heretofore granted to Lincoln University." 24 P.S. § 2510-403. It could be argued that both Mooney and Philadelphia National Bank are easier cases than the case before this court because they interpreted statutes that drew the line at "state agencies" or "political subdivisions," both terms that more precisely differentiate between the public and private spheres than does the term "instrumentality." In addition, the fact that ERISA includes all three terms suggests that each term may mean something different. Although Mooney and Philadelphia National Bank provide this court with a great deal of guidance, they do not squarely address the precise issue raised in Lincoln's motion to dismiss.

While this court has discovered no statutory language, legislative history or cases providing specific guidance in interpreting the term "instrumentality" in ERISA, there are generalized indications that Congress contemplated a fairly narrow exception to ERISA for plans "established by state and local governments" to cover "municipal and state employees." Feinstein v. Lewis, 477 F.Supp. 1256, 1261 (S.D.N.Y.1979), aff'd. 662 F.2d 573 (2d Cir. 1980). Nothing in the legislative history suggests that Congress intended "instrumentality" to broaden the reach of the "governmental plan" exception. Indeed, the legislative history's frequent reference to the exception simply as the "governmental plan" exception, see, e.g., H.R.Rep. No. 807, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Admin.News 4639, 4674, 4684, 4713, 4830; S.Rep. No. 127, 93d Cong., 2d Sess., reprinted in 1974 U.S. Code Cong. & Admin.News, 4639, 4965, without ever elaborating on the significance of the individual terms chosen to describe the scope of the exception, suggests that the exception was meant to cover the entire range of organizations traditionally characterized as governmental organizations, but not to expand the range to include organizations having some significant relationship with a government but not themselves viewed as governmental.

The Supreme Court of Pennsylvania's interpretation of Temple's near-identical act makes clear that Lincoln, characterized as a "state-related institution," cannot be recharacterized as a governmental or...