Lott v. Metropolitan Life Ins. Co.

• Decision Date: 31 August 1993
• Docket Number: Civ. A. No. 93-T-202-N.
• Citation: 849 F. Supp. 1451
• Parties: John William LOTT, et al., Plaintiffs, v. METROPOLITAN LIFE INSURANCE COMPANY, et al., Defendants.
• Court: U.S. District Court — Middle District of Alabama

849 F. Supp. 1451

John William LOTT, et al., Plaintiffs, v. METROPOLITAN LIFE INSURANCE COMPANY, et al., Defendants.

Civ. A. No. 93-T-202-N.

United States District Court, M.D. Alabama, N.D.

August 31, 1993.

Lynn W. Jinks, III, L. Bernard Smithart, Union Springs, AL, Andrew J. Smithart, III, Tuscaloosa, AL, for plaintiffs.

Steven Troy Marshall, Maynard, Cooper & Gale, P.C., Montgomery, AL, Lee E. Bains, Jr., Sarah E. Yates, Maynard, Cooper & Gale, P.C., Birmingham, AL, for Metropolitan Life Ins. Co.

Thomas H. Keene, Rushton, Stakely, Johnston & Garrett, Montgomery, AL, for Daniel L. Firth.

ORDER

MYRON H. THOMPSON, Chief Judge.

Plaintiffs, seventeen employees of the Bonnie Plant Farm, a division of Alabama Farmer's Cooperative, Inc. ("AFC"), initiated this lawsuit in the Circuit Court of Bullock County, Alabama, against defendants Metropolitan Life Insurance Company ("Metropolitan Life") and Daniel L. Frith, a Metropolitan Life agent, claiming that the insurance company fraudulently induced them to buy life insurance. Plaintiffs asserted a number of state-law claims: misrepresentation, fraudulent suppression, negligence, wantonness, conspiracy to defraud, and breach of fiduciary duty. Defendants removed the case to this court pursuant to 28 U.S.C.A. §§ 1441, 1331, contending that this court has subject-matter jurisdiction because plaintiffs' action is "super-preempted" under the Employee Retirement Income Security Act of 1974, 29 U.S.C.A. §§ 1001-1461, commonly known as ERISA. This cause is now before the court on plaintiffs' motion to remand.

In a removal action, the defendant has the burden to plead the basis for jurisdiction. Fowler v. Safeco Ins. Co. of America, 915 F.2d 616, 617 (11th Cir.1990) (citing B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir. Unit A 1981)); Kanne v. Connecticut General Life Ins. Co., 867 F.2d 489, 492 n. 4 (9th Cir.1988) (burden on defendant to prove facts necessary to establish preemption), cert. denied, 492 U.S. 906, 109 S.Ct. 3216, 106 L.Ed.2d 566 (1989). A defendant may submit affidavits, depositions, or other evidence to support removal. Fowler, 915 F.2d at 617. For the reasons set forth below, the court concludes that plaintiffs' motion to remand will be granted.

I. BACKGROUND

In 1987, AFC adopted a flexible benefits plan, or "cafeteria plan," which provided an opportunity for eligible AFC employees to use pre-tax dollars to pay their one-half share of the applicable premium for their health benefits obtained pursuant to their employment with AFC.¹ AFC paid the other half of the premium. By electing to participate in the cafeteria plan, employees would enjoy a tax savings because they would use pre-tax dollars, rather than after-tax dollars, to pay their one-half share of the premiums. The tax savings resulted in an increase in the employees' take-home pay. AFC also received tax savings when its employees participated in the cafeteria plan. For those employees who participated in the plan, AFC would have to pay less in federal taxes, such as matching FICA taxes.

In addition, as an aside to the cafeteria plan, AFC also gave its employees an option to use their increased take-home pay to purchase life insurance from Metropolitan Life. AFC agreed to deduct the premium payments for the life insurance from the employees' pay checks and to remit the premiums to Metropolitan Life. AFC would not pay any part of the life insurance premiums. Metropolitan Life would process all of the life insurance claims.

In most instances, AFC allowed Metropolitan Life agents to explain both the cafeteria plan and the life insurance option to AFC employees on AFC premises during business hours. Metropolitan Life Agents also solicited life insurance during these presentations and enrolled AFC employees in both the cafeteria plan and the life insurance plan.

According to the complaint, defendant Daniel Frith, acting as a Metropolitan Life agent, told the plaintiffs that the tax savings from the cafeteria plan would not be available to them unless they participated in Metropolitan Life's plan. He also told the plaintiffs that the life insurance would be free to them. Plaintiffs claim that they signed up for the life insurance based on these representations. In fact, as explained above, AFC employees could have received the tax savings from participating in the cafeteria plan without purchasing life insurance. They simply would have received more take-home pay.

II. DISCUSSION

The question before the court is whether plaintiffs' lawsuit has been properly removed to federal court as a case "arising under" the laws of the United States pursuant to 28 U.S.C.A. §§ 1441, 1331. Ordinarily, a cause of action arises under federal law only when the plaintiff's "well-pleaded complaint" raises a federal question. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 65-67, 107 S.Ct. 1542, 1548-49, 95 L.Ed.2d 55 (1987). The Supreme Court has determined, however, that the uniform regulatory scheme established by ERISA "so completely preempts" the area of employee benefit plans that an ERISA preemption defense to a state-law claim provides a sufficient basis for removal of the lawsuit to federal court, notwithstanding the traditional limitation imposed by the well-pleaded complaint rule. Id. at 64-67, 107 S.Ct. at 1546-48. Thus, if plaintiffs' state-law claims "relate to" an ERISA plan within the meaning of ERISA's preemption provision, 29 U.S.C.A. § 1144(a), these claims are preempted by ERISA and converted to federal questions, at least for the purposes of removal jurisdiction. Id. at 60, 66, 107 S.Ct. at 1544, 1547-48.

Removal would be proper here: (1) if the Metropolitan Life plan is an "employee benefit plan" within the meaning of ERISA, and plaintiffs' state-law claims "relate to" the life insurance plan; or (2) if the cafeteria plan is an "employee benefit plan" within the meaning of ERISA, and plaintiffs' state-law claims "relate to" the cafeteria plan.

A. Existence of an ERISA Plan

The plaintiffs recognize that the AFC cafeteria plan is an employee welfare benefit plan as defined by ERISA, 29 U.S.C.A. § 1002(1), and that they are participants in that plan. They disagree with defendants, however, that the Metropolitan Life plan is also an ERISA plan. Section 1002(1) defines an "employee welfare benefit plan" as "any plan, fund, or program ... established or maintained by an employer ... to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise ... benefits in the event of ... death."

Plaintiffs contend that the life insurance plan falls within the "safe-harbor" regulation promulgated by the Department of Labor, which excludes from ERISA's scope employee benefit programs that entail little employer involvement. The "safe-harbor" regulation provides:

"The terms `employee welfare benefit plan' and `welfare plan' shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which

(1) No contributions are made by an employer or employee organization;

(2) Participation in the program is completely voluntary for employees or members;

(3) The sole functions of the employee or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and

(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs."

29 C.F.R. § 2510.3-1(j). In order to fit within the "safe-harbor" regulation, a plan must meet all four criteria. Memorial Hosp. System v. Northbrook Life Ins. Co., 904 F.2d 236, 241 n. 6 (5th Cir.1990); Kanne v. Connecticut General Life Ins. Co., 867 F.2d 489, 492 (9th Cir.1988), cert. denied, 492 U.S. 906, 109 S.Ct. 3216, 106 L.Ed.2d 566 (1989). The court is of the view that the Metropolitan Life plan meets all four criteria.

First, it is undisputed that AFC made no contributions to the life insurance plan; AFC employees paid the entire premium themselves. Second, participation in the life insurance plan was voluntary. Defendants appear to recognize this point in arguing that AFC employees "understood that they could benefit from participating in the AFC Plan without having to purchase Metropolitan life insurance." Nevertheless, defendants contend that the plaintiffs themselves claim that participation in the life insurance program was not voluntary. Contrary to defendants' contention, plaintiffs specifically allege that participation in the life insurance plan was voluntary. See Complaint ¶ 38. Plaintiffs claim that, despite the true facts, defendants misrepresented that participation in the life insurance plan was required in order for employees to receive the tax savings from participation in the AFC cafeteria plan.

Whether the life insurance plan meets the third criterion, non-endorsement of the plan by AFC, is a close question. Defendants note that AFC publicized the life insurance program to its employees, collected premiums through payroll deductions, and remitted them to Metropolitan Life. Had AFC limited its involvement in the life insurance program to these functions, it would have been clear that AFC had not have endorsed the program. These functions are specifically allowed under the regulation without being considered as endorsing the program. See Brundage-Peterson v. Compcare Health Services Ins. Corp., 877 F.2d 509, 510 (7th Cir. 1989) (an employer could distribute advertising brochures from insurance providers, answer questions...