Levy v. Chandler

• Citation: 287 F.Supp.2d 831
• Decision Date: 17 October 2003
• Docket Number: No. 1:03-CV-109.,No. 1:03-CV-103,1:03-CV-103,1:03-CV-109.
• Parties: Yoram LEVY, Derivatively on Behalf of Nominal Defendant UnumProvident Corp., Plaintiff, v. J. Harold CHANDLER, et al., Defendants. Guy Patterson, Derivatively on Behalf of Nominal Defendant UnumProvident Corp., Plaintiff, v. J. Harold Chandler, et al., Defendants.
• Court: U.S. District Court — Eastern District of Tennessee

287 F.Supp.2d 831

Yoram LEVY, Derivatively on Behalf of Nominal Defendant UnumProvident Corp., Plaintiff, v. J. Harold CHANDLER, et al., Defendants.

Guy Patterson, Derivatively on Behalf of Nominal Defendant UnumProvident Corp., Plaintiff, v. J. Harold Chandler, et al., Defendants.

No. 1:03-CV-103

No. 1:03-CV-109.

United States District Court, E.D. Tennessee.

October 17, 2003.

COPYRIGHT MATERIAL OMITTED

John R. Morgan, Poole, Thornbury & Morgan, Chattanooga, TN, for plaintiff Yoram Levy.

John P. Konvalinka, Susan Kerr Lee, Grant, Konvalinka & Harrison, PC, William H. Horton, and Michael A. Anderson, Horton, Maddox & Anderson, PLLC, Chattanooga, TN, for defendants.

John C. Cavett, Jr., Cavett & Abbott, Chattanooga, TN, for plaintiff Guy Patterson.

MEMORANDUM

COLLIER, District Judge.

Before the Court are the consolidated motions of Plaintiffs Yoram Levy and Guy Patterson¹ to remand their respective actions to Tennessee chancery court (Court File No. 5). The Defendants collectively filed their Objections (Court File No. 8) and the Plaintiff's responded with a Reply (Court File No. 11). For the reasons stated below, the Court will DENY Plaintiffs' motions to remand.

I. STANDARD OF REVIEW

A defendant may remove to federal court any civil action initially filed in state court where the cause of action is one over which the district courts of the United States have original jurisdiction. 28 U.S.C. § 1441(a). Federal district courts have original jurisdiction over all cases "arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. Under the well-pleaded complaint rule, a case does not "arise under" federal law and is not removable if the complaint asserts only state law causes of action. Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 10, 103 S.Ct. 2841, 2846-47, 77 L.Ed.2d 420 (1983). Even the presence of an obvious or anticipated federal defense, including a defense of preemption, is insufficient to make a case removable to federal court. Caterpillar Inc. v. Williams, 482 U.S. 386, 393, 107 S.Ct. 2425, 2430, 96 L.Ed.2d 318 (1987). Federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint "establish[ing] either that federal law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law,' in that `federal law is a necessary element of one of the well-pleaded ... claims.'" Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 808, 108 S.Ct. 2166, 2173-74, 100 L.Ed.2d 811 (1988) (quoting Franchise Tax Bd., 463 U.S. at 27-28, 13, 103 S.Ct. at 2856).

However, as an exception to the "well-pleaded complaint" rule, the Supreme Court has provided Congress may "so completely preempt a particular area that any civil complaint raising this select group of claims is necessarily federal in character." Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64, 107 S.Ct. 1542, 1546, 95 L.Ed.2d 55 (1987). Thus, a claim may pose a federal question and be removable to federal court even though no issue of federal law is apparent from the face of the complaint. Id. Because the complete preemption exception to the "well-pleaded complaint" rule has the extraordinary effect of converting an ordinary state law claim into one stating a federal claim, the scope of the exemption for removal is narrow. Warner v. Ford Motor Co., 46 F.3d 531, 535 (6th Cir.1995) (citing Taylor, 481 U.S. at 65, 107 S.Ct. at 1547).

II. RELEVANT FACTS

UnumProvident Corp. ("UnumProvident") is a Delaware corporation with its principal place of business in Chattanooga, Tennessee. UnumProvident is the parent company of a number of insurance companies operating throughout the United States and abroad. Through its subsidiaries, the company provides a wide range of group and individual insurance products including disability insurance, life insurance, long-term care insurance, and payroll-deducted voluntary benefits plans offered by employers to their employees.

Plaintiffs bring derivative actions as shareholders of UnumProvident on behalf of the company and against certain of its officers and directors alleging violations of various fiduciary duties under Tennessee law. Specifically, Plaintiffs allege Defendants caused the company to adopt inappropriate and illegal claims processing procedures that artificially inflated the company's financial results and stock price, exposed the company to costly lawsuits, damaged the company's corporate image and goodwill, and significantly hindered its ability to raise capital for the foreseeable future. The Plaintiffs additionally allege prohibited insider trading activity on the part of certain individual defendants. The Plaintiffs seek damages and equitable relief on behalf of UnumProvident on the theory Defendants are liable under Tennessee corporation law because their actions constitute abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, and violations of various fiduciary duties including the duties of good faith, fair dealing, loyalty, and due care.

Plaintiffs both filed their respective actions in the Chancery Court for the State of Tennessee, Eleventh Judicial District, at Chattanooga. Plaintiff Levy filed her complaint on March 4, 2003 (Levy Court File No. 1 Attch.) and Plaintiff Patterson filed his lawsuit on March 10, 2003 (Patterson Court File No. 1 Attch.). Defendants removed the Levy case to federal court on April 2, 2003 (Levy Court File No. 1) and did likewise with the Patterson case on April 4, 2003 (Patterson Court File No. 1). Because their complaints are largely similar and the notices of removal filed by Defendants were "substantially identical," Plaintiffs Levy and Patterson simultaneously filed identical motions accompanied by supporting memoranda seeking to remand their respective cases to state court (Court File Nos. 5, 6). The Defendants filed their Objections (Court File No. 8) and Plaintiffs filed a Reply (Court File No. 11).

Defendants filed a Motion for Transfer and Coordination or Consolidation with the Judicial Panel on Multidistrict Litigation ("MDL Panel") seeking to consolidate pretrial matters in Plaintiffs' cases with other pending actions against UnumProvident and its officers and directors alleging securities fraud and breaches of various fiduciary duties under the Employee Retirement Security Income Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461. Defendants provided Plaintiffs with notice of this motion on May 16, 2003 (Court File No. 9). On September 2, 2003, the MDL Panel granted Defendants' motion and consolidated Plaintiffs' cases with fifteen other lawsuits filed in various district courts around the country and transferred those actions to this Court for coordinated pretrial proceedings.

III. DISCUSSION

Defendants removed the present derivative actions to federal court claiming Plaintiffs' state law claims were completely preempted by ERISA (Court File No. 1, Notice of Removal ¶ 9). Plaintiffs disagree, arguing their "wholly state law actions" do not require the resolution of any questions of federal law and the standard for removal under ERISA has not been met in their cases (Court File No. 6, p. 3).

Enacted in 1974, ERISA regulates employee investment, pension, and health benefit plans by setting certain minimum standards for participation, vesting, and funding, and imposing various fiduciary duties on those who manage such plans. In enacting ERISA, Congress sought to protect and strengthen the rights of employees, enforce uniform fiduciary standards, and encourage employers to create and maintain benefit plans for their employees. See 29 U.S.C. §§ 1001, 1001b. Congress believed these goals would be best served by establishing an exclusive body of federal law regulating such plans. Therefore, ERISA preempts any state laws or regulations that "relate to" employee benefit plans. 29 U.S.C. § 1144(a). See also Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 2900, 77 L.Ed.2d 490 (1983) (holding to relate to a benefit plan, a law need only have "a connection with or reference to such a plan"). ERISA preemption is "deliberately expansive, and designed to establish pension plan regulation as exclusively a federal concern." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45-46, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987). The only exception to the broad scope of ERISA preemption is for state laws regulating "insurance, banking, or securities." 29 U.S.C. § 1144(b)(2)(A); Ky. Ass'n of Health Plans, Inc. v. Miller, ___ U.S. ___, 123 S.Ct. 1471, 1474, 155 L.Ed.2d 468 (2003).

Plaintiffs' claims clearly "relate to" ERISA plans within the meaning of § 1144(a) and are therefore preempted. See McSharry v. Unumprovident Corp., 237 F.Supp.2d 875, 880 (E.D.Tenn.2002) (holding ERISA preempted state whistle-blower claims where ERISA created a substantive element of plaintiff's state law cause of action and claim turned on fiduciary duties imposed by ERISA). Despite their protestations to the contrary (see Court File No. 6, p. 17), the conduct underlying Plaintiffs' claims cannot be severed from the administration of employee benefits plans. Plaintiffs' state law claims are predicated primarily on the Defendants' alleged violation and/or total disregard of the fiduciary duties imposed by ERISA.² The violations of Tennessee corporate fiduciary duties are premised almost entirely on the fact of the ERISA fiduciary duty violations and management's subsequent failure to halt or disclose those violations. If there were no ERISA violations, there was no duty to halt or disclose anything and, therefore, no state law fiduciary violations. Thus, the violation of ERISA fiduciary duties is an essential element to Plaintiffs' claims. Plaintiffs do additionally allege Defendants improperly accounted for certain investments and engaged in other...