Schultz v. Prudential Ins. Co. of America

• Decision Date: 11 January 2010
• Docket Number: No. 09 C 2387.,09 C 2387.
• Citation: 678 F. Supp.2d 771
• Parties: Kathleen G. SCHULTZ, Plaintiff, v. The PRUDENTIAL INSURANCE, COMPANY OF AMERICA, Defendant.
• Court: U.S. District Court — Northern District of Illinois

678 F.Supp.2d 771

Kathleen G. SCHULTZ, Plaintiff, v. The PRUDENTIAL INSURANCE, COMPANY OF AMERICA, Defendant.

No. 09 C 2387.

United States District Court, N.D. Illinois, Eastern Division.

January 11, 2010.

Mark D. Debofsky, Violet Helen Borowski, Daley, Debofsky & Bryant, Chicago, IL, for Plaintiff.

John I. Grossbart, Corey M. Shapiro, Sonnenschein, Nath & Rosenthal, LLP, Chicago, IL, Michael S. Gugig, Sonnenschein Nath & Rosenthal LLP, New York, NY, for Defendant.

MEMORANDUM OPINION AND ORDER

RUBEN CASTILLO, District Judge.

Kathleen G. Schultz ("Schultz") brings this putative class action under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. and various state laws. Schultz seeks to recover long-term disability ("LTD") benefits under the Long Term Disability Plan by Aviall, Inc. (the "Aviall Plan"), which was maintained by her former employer, Aviall, Inc. ("Aviall") and issued by the Prudential Insurance Company of America ("Prudential"). (R. 27, Am. Compl.) In her complaint, she also seeks recovery on behalf of participants of other plans. (Id.) Presently before the Court is Prudential's motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(b)(7). (R. 13, Def.'s Mot. to Dismiss.) For the reasons stated below, the motion is granted.

RELEVANT FACTS

Schultz was employed by Aviall as a full-time Operations Administrator. (R. 27, Am. Compl. ¶ 11.) On November 30, 2006, she stopped working due to a disability. (Id.) The Social Security Administration (the "SSA") found Schultz to be disabled as of December 1, 2006 and awarded her monthly social security disability benefits beginning May 2007. (Id. ¶ 13.) Schultz's four dependents became entitled to monthly social security child benefits ("dependent social security benefits") beginning May 2007. (Id. ¶ 14.)

On April 30, 2007, Schultz was approved for LTD benefits under the Aviall Plan, which is governed by ERISA. (See id. ¶¶ 12, 27-28, 36.) Schultz subsequently informed Prudential that she was to begin receiving monthly social security disability benefits from the SSA. (Id. ¶ 15.) Prudential terminated Schultz's LTD benefits under the Aviall Plan on December 14, 2007, on the claimed grounds that she was capable of sedentary occupation. (Id. ¶ 16.)

Approximately fifteen months later, on February 15, 2009, Prudential reversed its initial termination decision and determined that Schultz was disabled. (Id. ¶ 18.) As a result, it found that Schultz was entitled to retroactive LTD benefits dating back to December 14, 2007. (Id.) Moreover, on March 2, 2009, Prudential determined that Schultz would be entitled to prospective LTD benefits subject to her continuing satisfaction of the Aviall Plan's contractual requirements. (Id. ¶ 19.)

In a letter dated March 11, 2009, Prudential informed Schultz that her retrospective and prospective LTD benefits would be reduced by the social security benefits she and her dependents received. (Id. ¶ 20.) Prudential's decision to deduct these benefits from the LTD benefits she received was based on the following Aviall Plan language defining deductible sources of income: "the amount you, your spouse and children receive or are entitled to receive as loss of time disability payments because of your disability under: (a) the United States Social Security Act." (See id. ¶ 10.) About a week later, Schultz appealed this decision. (Id. ¶ 21.) In her appeal, Schultz demanded that Prudential stop reducing her LTD benefits by the dependent social security benefits received by her children. (Id.) Additionally, she requested that the retrospective LTD benefits to which she was entitled not be offset by her dependents' social security benefits. (Id. ¶ 21.)

On March 25, 2009, Prudential requested approximately two weeks to complete a review of Schultz's appeal. (Id. ¶ 22.) In response, Schultz informed Prudential that she would delay filing a suit challenging Prudential's decision until April 17, 2009. (Id.) According to Schultz, Prudential failed to provide a timely response to her appeal. (Id.)

PROCEDURAL HISTORY

Schultz originally brought this action on behalf of herself and other similarly situated individuals on April 20, 2009. (R. 1, Compl.) On August 17, 2009, Schultz filed an amended complaint (the "complaint"). (R. 27, Am. Compl.) In Count I of the complaint, Schultz alleges that Prudential's reduction of her LTD benefits by the amount of dependent social security benefits received is unlawful because "these payments were not received as a loss of time disability payment and therefore are not a deductible source of income." (Id. ¶¶ 25-26.) She invokes 29 U.S.C. § 1132(a)(1)(B) as the basis for relief in Count I. (Id. ¶ 24.) In Count II, Schultz alleges that Prudential violated 29 U.S.C. § 1106, and therefore breached its fiduciary duty, by "engaging in self-dealing and acting pursuant to a conflict of interest" by "improperly offsetting dependent benefits contrary to the explicit terms of the policies." (Id. ¶¶ 30-36.) Finally, in Count III, Schultz brings a state law claim on behalf of individuals with ERISA-exempt plans.¹ (Id. ¶¶ 38-40.) Schultz alleges that Prudential's practice of reducing LTD benefits by the amount of dependent social security benefits received constitutes a breach of these individuals' respective insurance contracts. (Id. ¶ 40.) In seeking monetary, declaratory, and equitable relief, Schultz relies upon both 29 U.S.C. § 1132(a)(1)(B) and § 1132(a)(3). (See id. ¶¶ 24, 27, 28, 30, 36.)

LEGAL STANDARD

A motion under Rule 12(b)(6) challenges the sufficiency of the complaint. Cler v. Illinois Educ. Ass'n, 423 F.3d 726, 729 (7th Cir.2005). In ruling on a motion to dismiss brought pursuant to Rule 12(b)(6), the court assumes all well-pleaded allegations in the complaint to be true and draws all inferences in the light most favorable to the plaintiff. Killingsworth v. HSBC Bank, 507 F.3d 614, 618 (7th Cir.2007) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). To survive a motion to dismiss, the complaint must overcome "two easy-to-clear hurdles": (1) "the complaint must describe the claim in sufficient detail to give the defendant fair notice of what the claim is and the grounds on which it rests"; and (2) "its allegations must actually suggest that the plaintiff has a right to relief, by providing allegations that raise a right to relief above the `speculative level.'" Tamayo v. Blagojevich, 526 F.3d 1074, 1084 (7th Cir.2008) (emphasis in original).

A motion under Rule 12(b)(7) seeks dismissal based on the failure to join a necessary party. See Fed.R.Civ.P. 12(b)(7). To evaluate a Rule 12(b)(7) motion, a court must engage in a two-step inquiry. First, the court must determine whether a party is a necessary party. Fed.R.Civ.P. 19(a); Thomas v. U.S., 189 F.3d 662, 667 (7th Cir.1999). To make that determination, the court must consider: "(1) whether complete relief can be accorded among the parties to the lawsuit without joinder; (2) whether the absent person's ability to protect its interest in the subject-matter of the suit will be impaired; and (3) whether any existing parties might be subjected to a substantial risk of multiple or inconsistent obligations unless the absent person joins the suit." Thomas, 189 F.3d at 667. Second, if based on those factors it concludes that the party should, but cannot be, included in the action, the court will then decide whether the litigation can proceed at all in the party's absence. Id. If the court finds that "there is no way to structure a judgment in the absence of the party that will protect both the party's own rights and the rights of the existing litigants, the unavailable party is regarded as `indispensable' and the action is subject to dismissal upon proper motion under Rule12(b)(7)." Id.

ANALYSIS

I. Count I

In Count I, Schultz seeks to recover benefits under Section 1132(a)(1)(B), which provides that a "civil action may be brought ... by a participant or beneficiary... to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B). Prudential argues that Count I should be dismissed because it is not the proper party-defendant to an ERISA claim for benefits. (R. 14, Def.'s Mem. at 5-6.)

The Seventh Circuit has held that "generally, in a suit for ERISA benefits, the plaintiff is `limited to a suit against the Plan.'" Mote v. Aetna Life Ins. Co., 502 F.3d 601, 610 (7th Cir.2007) (quoting Blickenstaff v. R.R. Donnelley & Sons Co. Short Term Disability Plan, 378 F.3d 669, 674 (7th Cir.2004)). In limited circumstances, however, individuals have been permitted to sue a party other than the plan in a claim for ERISA benefits. Specifically, the Seventh Circuit has recognized exceptions to its general rule where: (1) the employer and plan are closely intertwined; or (2) the ERISA plan documents refer to the employer and plan interchangeably. Mein v. Carus Corp., 241 F.3d 581, 584-85 (7th Cir.2001) (allowing plaintiff to sue his employer to recover ERISA benefits because the employer and the plan were closely intertwined); Riordan v. Commonwealth Edison Co., 128 F.3d 549, 551 (7th Cir.1997) (permitting a plaintiff to sue employer to recover ERISA benefits because the plan documents referred to the employer and plan interchangeably). In essence, these two exceptions allow a plaintiff to proceed against a party other than the plan—specifically the employer—when the identity of the plan is not discernable because of the close relationship between the employer and the plan.

Under the Seventh Circuit's general rule, Count I is barred because Prudential, as the issuer of the insurance plan, is not the plan and is therefore not the proper defendant in an ERISA claim for benefits. The Court also finds that the...