Ritter v. Massachusetts Cas. Ins. Co.

• Decision Date: 18 April 2003
• Citation: 439 Mass. 214,786 N.E.2d 817
• Parties: Carol K. RITTER v. MASSACHUSETTS CASUALTY INSURANCE COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 817

786 N.E.2d 817

439 Mass. 214

Carol K. RITTER v. MASSACHUSETTS CASUALTY INSURANCE COMPANY.

Supreme Judicial Court of Massachusetts, Middlesex.

Argued January 7, 2003.

Decided April 18, 2003.

S. Stephen Rosenfeld, Boston (Mala M. Rafik with him) for the plaintiff.

Mark E. Schmidtke, Valparaiso (Philip M. Howe, Quincy, with him) for the defendant.

Present: MARSHALL, C.J., GREANEY, IRELAND, SPINA, COWIN, SOSMAN, & CORDY, JJ.

COWIN, J.

We are asked to decide whether the Federal Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001 et seq. (1994), preempts State law claims made by the president of a small corporation in a denial of benefits suit. We hold that the plaintiff has no standing to sue under ERISA, and, consequently, that her State law claims are not preempted by that Federal statute.

I. Background.

The plaintiff, Carol K. Ritter, appeals from the allowance of a motion for summary judgment filed by the defendant, Massachusetts Casualty Insurance Company (insurer). We recite the facts in the light most favorable to Ritter, the nonmoving party. See Harrison v. NetCentric Corp., 433 Mass. 465, 468, 744 N.E.2d 622 (2001). Ritter is the founder and former coowner and president of Boston Physical Therapy Associates, Inc. (BPTA), a Massachusetts corporation. Throughout most of Ritter's tenure at BPTA her brother, Timothy Kaminski, was the other coowner and only other corporate officer. Early in BPTA's history Ritter and Kaminski together decided that BPTA should offer a benefits package, including health insurance, designed to attract employees. The package included disability insurance for Ritter and Kaminski, but not for BPTA's other employees. In 1991, Ritter and Kaminski applied for and later obtained disability policies from the insurer in order to replace coverage provided by an insurer who had become bankrupt.

In 1992, Ritter was involved in an automobile accident, which left her disabled. The insurer paid benefits as required by its policy until 1998, when it determined that Ritter was no longer disabled and terminated payments. In 1999, Ritter filed a complaint in the Superior Court alleging that the insurer had failed to honor its obligations under the disability policy. In a separate count, Ritter alleged that the insurer's actions amounted to a violation of G.L. c. 93A. Although the insurer answered in a timely fashion, its answer failed to assert that Ritter's claims were preempted by Federal law. Eighteen months later, after discovery was complete, the parties filed cross motions for summary judgment. In its motion, the insurer argued that both of Ritter's claims were preempted by ERISA, and the motion judge allowed its motion for summary judgment on that basis. Ritter appealed and we granted her application for direct appellate review.

II. Discussion.

The motion judge's summary judgment determination that the Ritter's claims are preempted by ERISA is a legal conclusion that we review de novo. See Santino v. Provident Life & Acc. Ins. Co., 276 F.3d 772, 774 (6th Cir.2001); O'Connor v. Commonwealth Gas Co., 251 F.3d 262, 266 (1st Cir.2001).

A. Statutory Context.

Congress enacted ERISA to protect the interests of employees in their benefit plans. See Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 137, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990); 29 U.S.C. § 1001. Among its many provisions, the act allows participants or beneficiaries to sue to recover benefits due under a covered plan in either Federal or State court. See 29 U.S.C. § 1132. In order to ensure nationwide uniformity, Congress mandated that ERISA (subject to exceptions not relevant here) "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. § 1144(a). See Ingersoll-Rand Co. v. McClendon, supra at 142, 111 S.Ct. 478. This broadly worded provision effectively means that if a claim can be brought under ERISA, it must be brought under ERISA. See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45-46, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987); Kelly v. Fort Dearborn Life Ins. Co., 422 Mass. 15, 16-17, 660 N.E.2d 1100 (1996).

ERISA's preemption provision has been the subject of much litigation in the years following its enactment. See generally Shapiro, ERISA Preemption: To Infinity and Beyond and Back Again? (A Historical Review of Supreme Court Jurisprudence), 58 La. L.Rev. 997 (1998). This is hardly surprising, given that a party in an employment benefit suit can sometimes gain a tactical advantage by invoking ERISA's provisions. See Johnson v. Watts Regulator Co., 63 F.3d 1129, 1131-1132 (1st Cir.1995), and cases cited. That advantage can be decisive where, as here, a plaintiff files a complaint asserting only State law claims. A finding of ERISA preemption in such a case will leave nothing to adjudicate, and will generally result in a grant of summary judgment for the defendant. See Kelly v. Fort Dearborn Life Ins. Co., supra at 16, 660 N.E.2d 1100.

B. Waiver and the ERISA Preemption Defense.

Before discussing the motion judge's decision, we address a procedural point. The insurer raised the issue of ERISA preemption for the first time in its motion for summary judgment. Ritter failed to object to this late addition,¹ and the motion judge, in turn, treated the matter as a nonwaivable question of subject matter jurisdiction. The judge's jurisdictional analysis was incorrect. Many ERISA claims fall within the exclusive jurisdiction of Federal courts. See 29 U.S.C. § 1132(e)(1). In such cases, a claim of ERISA preemption in a State court is tantamount to a challenge to that court's subject matter jurisdiction, and it may not be waived. See Mass. R. Civ. P. 12(h)(3), 365 Mass. 754 (1974). ERISA, however, permits concurrent State jurisdiction over a participant or beneficiary's demand for benefits. See 29 U.S.C. § 1132(e)(1). Where such concurrent jurisdiction exists, a finding of ERISA preemption does not remove a case from the jurisdiction of a State court, but only alters the law applied by that court. In these circumstances an ERISA preemption claim is treated as a waivable affirmative defense. See Central Transp., Inc. v. Package Printing Co., 429 Mass. 189, 194, 706 N.E.2d 698 (1999); Wolf v. Reliance Standard Life Ins. Co., 71 F.3d 444, 446-448 (1st Cir.1995). It follows that, because this case is a demand for benefits by an alleged ERISA participant, the insurer waived the ERISA preemption defense by failing to include it in its answer. However, because Ritter did not argue below that the inclusion of the ERISA defense was untimely; because it would have been within the motion judge's discretion to allow the insurer, if requested, to amend its answer to include the defense, see Mass. R. Civ. P. 15(a), 365 Mass. 761 (1974); and because the summary judgment motion was decided as if such an amendment had been allowed, we consider the argument on the merits.

C. ERISA Preemption.

Ritter contends that ERISA is inapplicable to her suit because she has no standing to sue under it, and because ERISA's provisions do not apply to her insurance policy. We agree that Ritter lacks such standing and it is thus unnecessary to reach the question of ERISA's applicability to the disputed policy.

ERISA preempts State law only when a party with standing to sue under the act makes a claim. See Agrawal v. Paul Revere Life Ins. Co., 205 F.3d 297, 302 (6th Cir.2000); Weaver v. Employers Underwriters, Inc., 13 F.3d 172, 177 (5th Cir.), cert. denied, 511 U.S. 1129, 114 S.Ct. 2137, 128 L.Ed.2d 866 (1994), and cases cited. In order to sue to recover benefits under ERISA, a private party must be a "participant or beneficiary" of an employee benefit plan. See 29 U.S.C. § 1132(a)(1)(B). We conclude that Ritter is neither a participant nor a beneficiary within the meaning of the act.

We first address the insurer's contention that Ritter is an ERISA participant. A participant, under ERISA, is "any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit." 29 U.S.C. § 1002(7). As there is no evidence in the record that Ritter is, or ever was, a member of an employee organization, to be a participant she must be an "employee or former employee."

The term "employee" also has a statutory meaning: "any individual employed by an employer." 29 U.S.C. § 1002(6). While this circular definition says little about who is entitled to employee status under the act, see Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992), it does provide guidance as to who is not so entitled; an "employer" cannot be an "employee." See Kwatcher v. Massachusetts Serv. Employees Pension Fund, 879 F.2d 957, 959 (1st Cir.1989) ("Employee' and `employer' are plainly meant to be separate animals ...").² Accord In re Watson, 161 F.3d 593, 596-597 (9th Cir.1998); Matinchek v. John Alden Life Ins. Co., 93 F.3d 96, 101 (3d Cir.1996); Meredith v. Time Ins. Co., 980 F.2d 352, 356 (5th Cir.1993); Fugarino v. Hartford Life &amp Acc. Ins. Co., 969 F.2d 178, 186 (6th Cir. 1992), cert. denied, 507 U.S. 966, 113 S.Ct. 1401, 122 L.Ed.2d 774 (1993); Giardono v. Jones, 867 F.2d 409, 411 (7th Cir.1989). The participant half of the standing equation thus turns on the question of Ritter's status as an ERISA employer: if Ritter is, as she maintains, an employer, then she is not an employee; and if she is not an employee, she cannot be an ERISA participant.³

We must therefore decide whether Ritter is an employer within the meaning of the act. Once again, we begin with the statutory definition. Under ERISA, an employer is "any person acting directly as an employer, or indirectly in the interest of an employer,...