Martin Oil v. PHILADELPHIA LIFE INS.

• Decision Date: 08 December 1997
• Docket Number: No. 23813.,23813.
• Citation: 203 W.Va. 266,507 S.E.2d 367
• Court: West Virginia Supreme Court
• Parties: MARTIN OIL COMPANY, a West Virginia Corporation, Appellee, v. PHILADELPHIA LIFE INSURANCE COMPANY, a Corporation, Appellant, Professional Benefits Consultants, Inc., a Corporation, Appellee.

507 S.E.2d 367

203 W.Va. 266

MARTIN OIL COMPANY, a West Virginia Corporation, Appellee, v. PHILADELPHIA LIFE INSURANCE COMPANY, a Corporation, Appellant, Professional Benefits Consultants, Inc., a Corporation, Appellee.

No. 23813.

Supreme Court of Appeals of West Virginia.

Submitted September 10, 1997.

Decided December 8, 1997.

Charles G. Johnson, Marcia Allen Broughton, Simmerman & Broughton, Clarksburg, West Virginia, Attorneys for Appellee Martin Oil.

Anita R. Casey, Christopher J. Pyles, Meyer, Darragh, Buckler, Bebenek & Eck, Charleston, West Virginia, Attorneys for Professional Benefits. C. David Morrison, Michael J. Florio, Steptoe & Johnson, Clarksburg, West Virginia, Attorneys for Philadelphia Life.

WORKMAN, Chief Justice:

Philadelphia Life Insurance ("PLI") appeals from the Circuit Court of Upshur County's decision prohibiting it from asserting a cross-claim against co-defendant Professional Benefits Consultants ("PBC") and a third-party complaint against non-party Rudolph Pellegrini under principles of implied indemnity. PLI also challenges the circuit court's decision not to dismiss this case, arguing that federal jurisdiction is preemptive given the references to an ERISA¹ plan in the underlying case. After a thorough review of the record and the law in this area, we affirm the lower court's finding that preemption was not required and we affirm the lower court's decision prohibiting PLI from amending its pleadings.

In 1972, Martin Oil, the plaintiff in the underlying case, decided to establish a retirement plan for its employees. Martin Oil used the services of PLI to set up its ERISA plan. PLI's status was that of a third-party administrator with reference to the Martin Oil pension plan. It appears that PLI's employee, Rudolph Pellegrini, was the individual who actually handled the third-party administration of the Martin Oil plan.² In June 1983 when it decided that it wanted to get out of the business of pension plan administration, PLI purportedly mailed letters to its clients informing them of its decision³ and recommending that they retain Mr. Pellegrini to handle their accounts. In August 1983, Mr. Pellegrini left PLI and incorporated PBC, naming himself as president. The parties agree that Mr. Pellegrini took the Martin Oil file with him when he started PBC.

In 1985, Martin Oil decided to terminate its pension plan, which was now being serviced by PBC. When Martin Oil informed PBC of its desire to terminate the plan, PBC recommended that Martin Oil hire an accountant to terminate the plan. In attempting to terminate the plan, Martin Oil's accountant discovered that he did not have sufficient financial information to effect the termination.⁴ After incurring substantial expense, Martin Oil ultimately terminated its pension plan in October 1991.⁵

On July 31, 1992, Martin Oil filed a complaint in circuit court against PLI and PBC to recover the costs associated with the plan's termination. In the complaint, Martin Oil alleged that PLI and PBC are liable to it for breach of contract.⁶ Martin Oil entered into a settlement agreement with PBC and Mr. Pellegrini on October 27, 1995. The remaining defendant, PLI, filed a motion on November 30, 1995, seeking leave to file an amended answer and cross-claim against PBC and a third-party complaint against Mr. Pellegrini, individually. By order dated February 27, 1996, the circuit court dismissed PBC with prejudice and denied PLI's motions to file additional pleadings. PLI seeks a reversal of that order, as well as a ruling from this Court that the state court's jurisdiction over this matter is preempted under federal law.⁷

I. PREEMPTION

PLI argues that the jurisdictional language of ERISA, which provides that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan ... [,]"⁸ requires that this matter be heard in federal court. 29 U.S.C. § 1144(a) (1994). Based on the expansive judicial interpretation given to the terms "relate to," PLI maintains that federal jurisdiction is mandated. Id. PBC takes no position with regard to the issue of preemption and Martin Oil argues that its breach of contract claims are not preempted by ERISA.

As support for its position that the terminology "relate[s] to" must be viewed expansively, PLI cites the United States Supreme Court's observation in Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987), that this phrase conveys "`its broad common-sense meaning, such that a state law "relates to" a benefit plan "in the normal sense of the phrase if it has a connection with or reference to such a plan."'" Id. at 47, 107 S.Ct. 1549 (quoting Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985), quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983)). Despite the historically broad interpretation of the relevant statutory language, it has been consistently recognized that state laws or actions that affect a pension plan in "too tenuous, remote or peripheral a manner" are not preempted by ERISA. Shaw, 463 U.S. at 100, n. 21, 103 S.Ct. 2890; accord Hollingsworth Paving, Inc. v. Jefferson-Pilot Life Ins. Co., 929 F.Supp. 1097, 1100 (W.D.Tenn.1996); Ball v. Life Planning Servs., Inc., 187 W.Va. 682, 421 S.E.2d 223 (1992) (finding that state law imposing liability on unlicensed insurance brokers had too tenuous an effect on ERISA plan to require preemption).

While the seemingly ubiquitous issue of ERISA preemption has resulted in diverse rulings depending on the deciding tribunal's application of the "relate to" jurisdictional language, certain generalizations can be made with regard to when preemption is and is not required. Where the state law claim seeks the recovery of ERISA benefits, there is no dispute that such claim affects the plan and therefore preemption is necessary. See Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272, 1276 (6th Cir.1991),cert. dismissed, 505 U.S. 1233, 113 S.Ct. 2, 120 L.Ed.2d 931 (1992) (finding preemption where health care provider sued plan administrator seeking recovery of plan benefits). Similarly, those cases in which the state law claim involves "some aspect of the distribution, processing or entitlement of benefits or administration of claims or funds under a[n] [ERISA] plan[,]" typically are determined to be preempted by federal law. Hollingsworth Paving, 929 F.Supp. at 1101; see also Metropolitan Life Ins. Co. v. Pressley, 82 F.3d 126, 129 (6th Cir.1996),cert. denied sub nom. Pressley v. Pressley, — U.S. ___, 117 S.Ct. 2431, 138 L.Ed.2d 193 (1997) (commenting that state laws relating to designation of beneficiaries are preempted when an ERISA plan is involved); Tri-State Mach., Inc. v. Nationwide Life Ins. Co., 33 F.3d 309 (4th Cir.1994),cert. denied, 513 U.S. 1183, 115 S.Ct. 1175, 130 L.Ed.2d 1128 (1995) (holding that ERISA preempted state law claim brought by employer against insurance company for wrongful claims processing). In addition to the nature of the claim, the identity of the parties is a critical factor when resolving the issue of preemption. In the prototypical preemption case, as the court observed in Hollingsworth Paving, the parties involved will be "employees or former employees, who challenge some aspect of their status as beneficiaries under a plan." 929 F.Supp. at 1101. Other parties who may be included in a case where preemption is required are the employer, the plan, and the plan fiduciaries. See Firestone Tire & Rubber Co. v. Neusser, 810 F.2d 550, 556 (6th Cir.1987); General Am. Life Ins. Co. v. Castonguay, 984 F.2d 1518, 1521 (9th Cir.1993) (stating that "the key to distinguishing between what ERISA preempts and what it does not lies ... in recognizing that the statute [ERISA] comprehensively regulates certain relationships: for instance, the relationship between plan and plan member, between plan and employer, between employer and employee (to the extent an employee benefit plan is involved), and between plan and trustee").

PLI's preemption argument rests entirely on the broad interpretation given to the jurisdictional terms "relate to." 29 U.S.C. § 1144(a). According to PLI, the mere reference to the Martin Oil pension plan in the instant case requires preemption. Yet, this is far from true, as the mere incidental reference or effect of state laws on an ERISA plan does not provide the requisite basis for preemption. See Aetna Life Ins. Co. v. Borges, 869 F.2d 142, 146-47 (2nd Cir.), cert. denied, 493 U.S. 811, 110 S.Ct. 57, 107 L.Ed.2d 25 (1989) (stating that "[w]hat triggers ERISA preemption is not just any indirect effect on administrative procedures but rather an effect on the primary administrative functions of benefit plans, such as determining an employee's eligibility for a benefit and the amount of that benefit"); see also Thiokol Corp. v. Roberts, 858 F.Supp. 674, 683-84 (W.D.Mich.1994), aff'd, 76 F.3d 751 (1996), cert. denied sub nom. Thiokol Corp. v. Revenue Div'n, Dep't of Treasury, — U.S.___, 117 S.Ct. 2448, 138 L.Ed.2d 206 (1997) (holding that preemption was not required because Michigan's Single Business Tax had only an incidental effect on ERISA plans despite fact that tax was calculated based on plan contributions); accord Provience v. Valley Clerks Trust Fund, 509 F.Supp. 388, 391 (E.D.Cal.1981) (holding that "where the state law has only an indirect effect on the plan and where it is one of general application which pertains to an area of important state concern, the court should find there has been no preemption").

Given the dearth of West Virginia law on this issue,⁹ we find the district court's approach in Hollingsworth Paving instructive to the issue of preemption before us. In that case, the plan administrator sued the life insurance carrier for breach of fiduciary duty, alleging that the carrier's salesman altered the nature of the...