Longoria v. Cearley

• Decision Date: 18 June 1992
• Docket Number: No. A-91-CA-955.,A-91-CA-955.
• Citation: 796 F. Supp. 997
• Parties: Viola LONGORIA, et al. v. Jo Ann CEARLEY, et al.
• Court: U.S. District Court — Western District of Texas

796 F. Supp. 997

Viola LONGORIA, et al. v. Jo Ann CEARLEY, et al.

No. A-91-CA-955.

United States District Court, W.D. Texas, Austin Division.

June 18, 1992.

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R. Louis Bratton, The Bratton Firm, Austin, Tex., Leon Breeden, San Marcos, Tex., for plaintiffs.

William David Deaderick, Tulk & Deaderick, Austin, Tex., for Jo Ann Cearley.

John T. Anderson, Graves, Dougherty, Hearon & Moody, Austin, Tex., for Celtic Life Ins. Co.

ORDER

NOWLIN, District Judge.

Before the Court is the Plaintiffs' Motion to Remand, filed February 18, 1992. On June 4, 1992, this Court held a hearing to address the various issues relating to removal and remand in this case. Having reviewed and considered this motion, the responses thereto, and the applicable law, the Court finds that this motion should be GRANTED.

I. BACKGROUND

The plaintiffs initiated this lawsuit in state court. The plaintiffs allege various state law claims relating to the initial enrollment by them (or their employer of them) into a group insurance program of the defendant insurance company.

The plaintiffs' employer is Community Action, Incorporated, a nonprofit corporation. Community Action already had group health insurance for its employees from another insurance company. That company, however, declined to insure the plaintiffs and some other employees because of their poor medical histories.

The defendant insurance agent, Jo Ann Cearley, then advised Community Action to apply for coverage of these employees with the defendant Celtic Life Insurance Company. The plaintiffs claim that the insurance agent Cearley promised coverage by defendant Celtic despite the plaintiffs' preexisting conditions. The plaintiffs allege that defendant Cearley intentionally concealed those conditions by entering false data on the enrollment cards submitted to defendant Celtic. The plaintiffs also assert that Defendant Cearley was at all times acting in an agency relationship for Defendant Celtic Life Insurance Company.

Subsequently, upon discovery of the alleged misrepresentations of the preexisting conditions and of the number of people employed by Community Action, defendant Celtic rescinded the policy and refunded the premiums paid, less claims paid, to the employer.

To determine whether removal is proper in this case, the following issues must be addressed:

(1) Does a plan exist?

(2) If a plan does exist, is the plan covered under ERISA?

(3) Is the plan a "governmental plan" and, therefore, excluded from coverage under ERISA?

II. THE RELEVANT ERISA LAW General Removal Issues

Pursuant to 28 U.S.C. § 1446(c)(5), this Court held an evidentiary hearing to determine whether to grant the petition to remove filed by the Defendant Celtic and joined in by the other defendant or to grant the motion to remand filed by the plaintiffs. 28 U.S.C. § 1446(c)(5).

Removing defendants generally have the burden to show that the federal court would have jurisdiction over the lawsuit if the plaintiff initially sued in federal court. See Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 19 and n. 18, 103 S.Ct. 2841, 2851 and n. 18, 77 L.Ed.2d 420 (1983). However, reiterating an independent corollary to the well-pleaded complaint rule, the Supreme Court stated that a plaintiff may not defeat removal by omitting to plead necessary federal questions in a complaint. See id., 463 U.S. at 22, 103 S.Ct. at 2853 (citations omitted). Also, original federal jurisdiction is available if either: (1) some substantial, disputed question of federal law is a necessary element of one of the well-pleaded state claims; or, (2) one of the claims is effectively one of federal law. See id., 463 U.S. at 13, 103 S.Ct. at 2848. The Court explained:

Any state action coming within the scope of § 502(a) 29 U.S.C. § 1132(a) of ERISA would be removable to federal district court, even if an otherwise adequate state cause of action were pleaded without reference to federal law.

See id., 463 U.S. at 24, 103 S.Ct. at 2854. When the federal claim arises only as a defense to a state created action, federal declaratory judgment jurisdiction is lacking. See id., 463 U.S. at 16, 103 S.Ct. at 2850 (citing to and quoting from 10A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure § 2767, pp. 744-745 (2d. ed. 1983)). If the state courts reject a claim of federal preemption, that decision may ultimately be reviewed on appeal by the United States Supreme Court. See id., 463 U.S. at 12 n. 12, 103 S.Ct. at 2848 n. 12.

Although noting that the Construction Laborers Vacation Trust decision involved a suit seeking a declaration that state laws were not preempted by ERISA, the Supreme Court stated that the pending action involved companies subject to ERISA, regulation that sought injunctions against claims that are preempted by ERISA. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96 n. 14, 103 S.Ct. 2890, 2899 n. 14, 77 L.Ed.2d 490 (1983) (emphasis in original). Similarly to Shaw v. Delta Air Lines, the issue in this action is whether the plaintiffs' claims "relate to" employee benefit plans within the meaning of 29 U.S.C. § 1144(a) and, if so, whether any exception in ERISA saves these claims from preemption. See id., 463 U.S. at 96, 103 S.Ct. at 2899.

The Fifth Circuit has attempted to clarify the "relates to" requirement of ERISA preemption:

The most important factor for a court to consider in deciding whether a state law affects an employee benefit plan "in too tenuous, remote, or peripheral a manner to be preempted" is whether the state law affects relations among ERISA's named entities. "Courts are more likely to find that a state law relates to a benefit plan if it affects relations among the principal ERISA entities — the employer, the plan, the plan fiduciaries, and the beneficiaries — than if it affects relations between one of these entities and an outside party, or between two outside parties with only an incidental effect on the plan."

Memorial Hospital System v. Northbrook Life Insurance Co., 904 F.2d 236, 249 (5th Cir.1990) (citing Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan Enterprises, Inc., 793 F.2d 1456, 1467 (5th Cir.1986) cert. denied 479 U.S. 1034, 107 S.Ct. 884, 93 L.Ed.2d 837 (1987)) (footnote omitted).

This lawsuit does not "relate to" an ERISA plan under the distinct facts and circumstances of this case. There is no longer any arrangement or plan in existence between the employer and the insurance company or between the employees and the insurance company. The plaintiffs are not alleging that they were wrongly denied benefits under the group policy. The plaintiffs' suit will not affect any plan.

Section 1003 states that ERISA generally applies to any employee benefit plan established or maintained:

(1) by any employer engaged in commerce or in any industry or activity affecting commerce; or

(2) by any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce; or

(3) both.

29 U.S.C. § 1003(a). ERISA does allow state laws which regulate insurance to apply to an employee welfare benefit plan which is a fully-insured multiple employer arrangement. See 29 U.S.C. § 1144(b)(6). For other multiemployer arrangements that are ERISA plans, state laws are preempted to the extent inconsistent with ERISA. See id. The pertinent requirement is that the multiemployer arrangement also must be an ERISA employee welfare plan.

Even if removal is not proper in this case, the defendants may nevertheless argue in state court that, because of ERISA, they are not subject to state laws.¹

ERISA defines some terms which are pertinent to this action.² ERISA defines a "multiemployer plan" as:

a plan — (i) to which more than one employer is required to contribute, (ii) which is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer, and (iii) which satisfies such other requirements as the Secretary may prescribe by regulation.

29 U.S.C. § 1002(37)(A). Even if the group policy in this action should be considered a "plan," the group policy would not qualify as a "multiemployer plan" under ERISA because there has been no showing of the second requirement that the program was maintained pursuant to one or more collective bargaining agreements. See id.

Another major issue before this Court is whether the policy was self-funded or not. This question seems to turn primarily on who bore the risk under the plan. If for example, an ERISA plan only contracted out for someone to "administer" the plan but the ERISA plan retained all of the risk of loss due to claims made under the plan, such a plan would be a self-funded plan. If a plan paid premiums to some other entity that would bear the risk of the loss, then the plan would not be self-funded and would be insured. Applying substance over form, this Court finds that the employer who purchased this insurance has not been shown to be bearing the risk. Rather, the plan itself appears to be bearing the risk. Determining whether a plan is self-funded or insured is very fact specific and can often be a judgment call.

"The saving clause retains the independent effect of protecting state insurance regulation of insurance contracts purchased by employee benefit plans." FMC Corp. v. Holliday, 498 U.S. 52, ___, 111 S.Ct. 403, 411, 112 L.Ed.2d 356.

The Fifth Circuit has clarified the difference between a "self-insured" plan and an "insured" plan. See MDPhysicians & Associates v. State Board of Insurance, 957 F.2d 178 (5th Cir.1992). A multi-employer welfare arrangement ("MEWA") that is an employee welfare benefit plan under ERISA does qualify for the limited preemption under ERISA from state insurance regulations. See id. at 181. Under ERISA, MEWAs include "all arrangements `established or maintained for the purpose of offering or...