Morales v. Pan American Life Ins. Co., Civ. A. No. 85-3323.

• Decision Date: 31 July 1989
• Docket Number: Civ. A. No. 85-3323.
• Citation: 718 F. Supp. 1297
• Parties: Joseph V. MORALES, et al. v. PAN AMERICAN LIFE INSURANCE COMPANY, et al.
• Court: U.S. District Court — Eastern District of Louisiana

718 F. Supp. 1297

Joseph V. MORALES, et al. v. PAN AMERICAN LIFE INSURANCE COMPANY, et al.

Civ. A. No. 85-3323.

United States District Court, E.D. Louisiana.

July 31, 1989.

Gerald Wasserman, Bach & Wasserman, Metairie, La., for plaintiffs.

Dermot S. McGlinchey, Eve Masinter, McGlinchey, Stafford, Mintz, Cellini & Lang, New Orleans, La., for defendants.

ORDER AND REASONS

MENTZ, District Judge.

BACKGROUND

Plaintiffs filed this suit against Pan-American Life Insurance Company (PALIC) and the PALIC Employee Retirement Benefit Plan (the Plan) as a class action¹ for penalties and damages for violation of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001, et seq. Plaintiffs also allege unjust enrichment and third-party beneficiary claims. Plaintiffs have exhausted all administrative remedies pursuant to Article VII, § 7.02 of the Plan.

Plaintiffs are former PALIC employees who worked in PALIC's Medicare Division. All PALIC employees, including plaintiffs, are participants in the Plan. The named fiduciaries of the Plan are PALIC and the Pension Committee, which consists of five appointed members. The Pension Committee is also the administrator of the Plan. Since January 2, 1957, PALIC has made all contributions to the Plan on behalf of all its employees.² Prior to that time, the Plan was also funded by employee contributions.

PALIC's Medicare Division was responsible for administering the Medicare Program in Louisiana pursuant to an agreement entered into in July, 1966 between the Secretary of Health and Human Services (SHHS) and PALIC. The contract provided that there shall be no profit or loss to the contractor. Accordingly, the SHHS reimbursed PALIC for costs it incurred in the administration of the Medicare Program, including pension contributions.³ On December 31, 1984, the SHHS terminated its Medicare contract with PALIC, and PALIC closed its Medicare Division and either retired or laid-off the employees in that Division.⁴

Pursuant to the terms of the Plan, the non-vested participants did not receive any benefits upon termination.⁵ Vested participants were entitled to a paid-up deferred annuity contract payable at age 65⁶ or, if their accrued benefits had a present value of $5,000.00 or less, they had the option of receiving their benefits in a lump-sum. In April, 1985, the PALIC Pension Committee unanimously voted to offer a lump-sum benefit to vested participants whose accrued benefits had a present value of $20,000.00 or less. This option was made retroactive to January 1, 1976.

There are sixty-two non-vested plaintiffs and six vested plaintiffs. The non-vested plaintiffs claim that the termination of the Medicare Division constitutes a "partial termination" of the Plan entitling them under ERISA, 29 U.S.C. § 1344, to a full vesting and allocation of the Plan assets among the participants and beneficiaries. The six vested plaintiffs are those who were eligible only for the deferred annuity because their accrued benefits were greater than $20,000.00.⁷ They claim that the Pension Committee's decision to limit the lump-sum option to participants whose accrued benefits were $20,000.00 or less was arbitrary and capricious, entitling them to remedies provided by ERISA, 29 U.S.C. § 1132(a).

Plaintiffs, both vested and non-vested, also claim that PALIC and the Plan have been unjustly enriched by virtue of the termination of the Medicare Division and that, as third-party beneficiaries of the contract between PALIC and the SHHS, they are entitled to the profit. In essence, plaintiffs claim entitlement to excess pension fund contributions PALIC allegedly charged to the SHHS, which together with accrued interest, amounts to more than six times the amount PALIC calculates that it owes to the vested employees. Plaintiffs also allege that PALIC diverted funds from the pension plan after it terminated the plaintiffs' jobs and comingled the funds with the general corporate assets of the company.⁸

Defendants moved to dismiss, or in the alternative for partial summary judgment, on the ground that plaintiffs' unjust enrichment and third-party beneficiary claims are quasi-contractual state-law claims which are preempted by ERISA. Defendants subsequently moved for summary judgment for the reasons that (1) there was no partial termination of the Plan and (2) the decision of the Plan administrator in the disbursement of pension benefits with respect to the Medicare Division participants was not arbitrary and capricious. Having reviewed the record and the law, the Court now decides both motions in favor of the defendants.

PREEMPTION

Plaintiffs do not argue that they have a cause of action under Louisiana law for their unjust enrichment and third-party beneficiary claims. Clearly, if these claims were based on Louisiana law, they would be preempted because they "relate to" an employee benefit plan and they do not regulate insurance.⁹ See Pilot Life Insurance Company v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987); Mayeske v. International Association of Firefighters, 1989 WL 37154 at p. 33-34 (D.D.C. March 30, 1989). Instead, plaintiffs contend that these claims are federal common law claims.

FEDERAL COMMON LAW

The drafters of ERISA intended that federal courts would develop a federal common law to supplement the statutory scheme. See 120 Cong.Rec. 29, 942 (remarks of Sen. Javits). However,

the claim that Congress intended for the federal courts to create a body of federal common law to govern ERISA cases does not as plaintiffs suggest give a federal court carte blanche authority to apply any prevailing state common law doctrine it chooses to ERISA cases. A federal court may create federal common law based on a federal statute's preemption of an area only where the federal statute does not expressly address the issue before the court.... Furthermore, when it is appropriate for a federal court to create federal common law, it may use state common law as the basis of the federal common law only if the state law is consistent with the policies underlying the federal statute in question; ... federal courts may not use state common law to re-write a federal statute.

Nachwalter v. Christie, 805 F.2d 956, 959-60 (11th Cir.1986) (citing C. Wright, Law of Federal Courts § 60, at 283-84 (3d ed. 1976); Textile Workers Union of America v. Lincoln Mills of Alabama, 353 U.S. 448, 456-57, 77 S.Ct. 912, 918, 1 L.Ed.2d 972 (1957); Scott v. Gulf Oil Corporation, 754 F.2d 1499, 1502 (9th Cir.1985)). See also Cefalu v. B.F. Goodrich Company, 871 F.2d 1290, 1297 (5th Cir.1989); Cummings by Techmeier v. Briggs & Stratton Retirement Plan, 797 F.2d 383, 390 (7th Cir. 1986), cert. denied, 479 U.S. 1008, 107 S.Ct. 648, 93 L.Ed.2d 703 (1986); and Van Orman v. American Insurance Company, 680 F.2d 301, 312-13 (3d Cir.1982).

Creation of a federal common law of unjust enrichment and third-party beneficiary claims would be inconsistent with ERISA's terms and policies. ERISA specifically provides that benefit plans must be "established and maintained pursuant to a written instrument," 29 U.S.C. § 1102(a)(1), and the courts have sustained the primacy of plan provisions. ERISA's specific enforcement provisions found in 29 U.S.C. § 1132(a) focus on the terms of the plan.

A plan participant or beneficiary may sue to recover benefits due under the plan, to enforce the participant's rights under the plan, or to clarify rights to future benefits. Relief may take the form of accrued benefits due, a declaratory judgment on entitlement to benefits, or an injunction against a plan administrator's improper refusal to pay benefits. A participant or beneficiary may also bring a cause of action for breach of fiduciary duty, and under this cause of action may seek removal of the fiduciary.

. . . . .

The policy choices reflected in the inclusion of certain remedies and the exclusion of others under the federal scheme would be completely undermined if ERISA-plan participants and beneficiaries were free to obtain remedies under state law that Congress rejected in ERISA.

Pilot Life, 107 S.Ct. at 1556. These civil enforcement remedies are exclusive. Id. at 1555. There is no provision for quasi-contractual rights or damages. See Bishop v. Osborne Transportation, Inc., 838 F.2d 1173, 1174 (11th Cir.1988), cert. denied, ___ U.S. ___, 109 S.Ct. 90, 102 L.Ed.2d 66 (1988); Varhola v. Doe, 820 F.2d 809, 817 (6th Cir.1987); Mayeske, 1989 WL 37154 at p. 34; Armstrong v. Bert Bell NFL Player Retirement Plan and Trust Agreement, 646 F.Supp. 1094, 1095 (D.Colo.1986); Simmons v. Prudential Insurance Company of America, 641 F.Supp. 675, 681-83 (D.Colo.1986).

Quasi-contractual remedies have no place where there is a contract between the parties. See Cummings, 797 F.2d at 390; Van Orman, 680 F.2d at 312-14; Wishner v. St. Luke's Hospital Center, 550 F.Supp. 1016, 1020 (S.D.N.Y.1982). If separately negotiated contracts to which the participants are not parties can govern the disbursement of plan funds, the plan itself becomes meaningless. To allow participants to recover on quasi-contractual theories would "upset the uniform regulation of plan benefits intended by Congress." Howard v. Parisian, Inc., 807 F.2d 1560, 1565 (11th Cir.1987). In addition, "forcing trustees of a plan to pay benefits which are not part of the written terms of the program disrupts the actuarial balance of the Plan and potentially jeopardizes the pension rights of others legitimately entitled to receive them." Cummings, 797 F.2d at 389. "The actuarial soundness of pension funds is, absent extraordinary circumstances, too important to permit trustees to obligate the fund to pay pensions to persons not entitled to them under the express terms of the pension plan." Id. (quoting Phillips v. Kennedy, 542 F.2d 52, 55 n. 8 (8th Cir.1976)). It is for these same reasons that oral modification of pension plans is impermissible under ERISA. See Cefalu, 871 F.2d at 1297; Nachwalter...