Sender v. Franklin Res. Inc.
| Decision Date | 20 October 2011 |
| Docket Number | No. C-11-3828 EMC,Docket No. 16,Docket No. 6,C-11-3828 EMC |
| Court | U.S. District Court — Northern District of California |
| Parties | JOHN SENDER, Plaintiff, v. FRANKLIN RESOURCES, INC., Defendant. |
Defendants' motion to dismiss Plaintiff's complaint and strike the jury demand and Plaintiff's motion to remand came on for hearing before the Court on October 14, 2011. Docket Nos. 6, 16. For the reasons set forth below, the Court DENIES Plaintiff's motion to remand and GRANTS Defendant's motion to dismiss Plaintiff's complaint, with leave to amend.
Plaintiff John Sender brought suit against Defendant Franklin Resources, Inc. for Defendant's alleged failure to issue stock that Plaintiff earned from his participation in Defendant's Employee Stock Ownership Plan ("ESOP") from 1972 to 1978. First Amended Compl. ¶¶ 1, 11 ("FAC"). When Plaintiff left Defendant's employment in 1978, the benefits accrued from his participation remained in the ESOP account because the ESOP did not permit immediate distributions to participants younger than 55 years old. FAC ¶ 11.
In 1981, Defendant terminated the ESOP. FAC ¶ 12. Upon the ESOP's termination, Defendant was to distribute the ESOP assets to the ESOP participants, including Plaintiff. FAC ¶ 12. Plaintiff alleges that he never received his share of the ESOP benefits, and that Defendant lacksany records that Plaintiff ever received his shares. FAC ¶ 24. Prior to filing suit, Plaintiff sought to recover his shares by contacting Defendant's benefits department. FAC ¶ 15. Plaintiff's claim was denied by Defendant's Administrative Committee, which found that the ESOP benefits had already been fully distributed. FAC ¶ 16.
Based on Defendant's alleged failure to distribute the ESOP benefits and maintain records of the ESOP distributions, Plaintiff filed suit in state court. Plaintiff's claims are for state common law claims for breach of fiduciary duty and negligence, and a claim for an order directing issuance and delivery of share certificates pursuant to California Corporations Code § 419(b). FAC ¶¶ 26, 31, 36. Plaintiff seeks relief in the form of a judicial order requiring Defendant to issue and deliver to Plaintiff stock certificates reflecting the amounts accrued by Plaintiff in the ESOP, or the financial equivalent. FAC at 7. Defendant then removed this case to federal court on the basis that Plaintiff's state law claims are completely preempted by ERISA. Docket No. 1 ¶ 3e.
ERISA was enacted by Congress to "protect the interests of participants in employee benefit plans and their beneficiaries by setting out substantive regulatory requirements for employee benefit plans and to provide for appropriate remedies, sanctions, and ready access to the Federal courts." Aetna Health Inc. v. Davila, 542 U.S. 200, 208 (2004) (citing 29 U.S.C. 1001(b) (2006)). To ensure a uniform regulatory regime over employee benefit plans, "any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore pre-empted." Id. at 209.
There are two types of ERISA preemption. First, there is "conflict preemption" under ERISA's broad preemption provision § 514(a), which preempts all state laws "insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. § 1144(a) (2006). A defendant may raise conflict preemption as a defense to a state cause of action, but it does not confer federal jurisdiction or authorize removal. Toumajian v. Frailey, 135 F.3d 648, 654-55 (9th Cir. 1998); Marin Gen. Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941, 945 (9th Cir. 2009).
Second, there is "complete preemption" under ERISA's civil enforcement scheme, § 502(a). Toumajian, 135 F.3d at 655; Marin Gen. Hosp., 581 F.3d at 945. Section 502(a) empowers a participant of an ERISA plan to bring a "civil action . . . 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) (2006). "[I]f an individual, at some point in time, could have brought his claim under ERISA § 502(a)(1)(B), and where there is no other independent legal duty that is implicated by a defendant's action, then the individual's cause of action is completely preempted by ERISA § 502(a)(1)(B)." Davila, 542 U.S. at 210. Unlike conflict preemption, complete preemption under § 502(a) does confer exclusive federal jurisdiction by converting a state cause of action into a federal one for removal purposes. Id. at 209; see also Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 66 ().1
Here, the issue is whether Plaintiff's claim that Defendant allegedly failed to deliver to Plaintiff stocks owed under the ESOP is preempted by ERISA.2 For this Court to have jurisdiction in this case, Plaintiff's claim must be completely preempted by § 502(a). Ordinarily, whether a case arises under federal law depends on the "well-pleaded complaint" rule. See Davila, 542 U.S. at 207. An exception to the well-pleaded complaint rule exists where a federal statute, such as ERISA, wholly displaces the state law cause of action through complete preemption. Id. ERISA completely preempts the state law cause of action because a claim which falls within the scope of ERISA's civilenforcement scheme, "even if pleaded in terms of state law, is in reality based on federal law." Id. at 207-08.
Complete preemption under § 502(a) is determined under a two-prong test: (1) whether the plaintiff could have brought the claim under § 502(a), and (2) whether there is no other independent legal duty that is implicated by the defendant's actions. Id. at 210; Marin Gen. Hosp., 581 F.3d at 946.
Defendant argues that Plaintiff's state law claims are completely preempted because it is ultimately a claim for benefits under § 502(a)(1)(B). § 502(a)(1)(B) empowers plan participants "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).
Courts have found that the plaintiff could have brought the claim under § 502(a) when the claim is for benefits owed under an ERISA plan. In Davila, the plaintiffs' complaints were for the denial of coverage promised to them under the terms of an ERISA-regulated plan. 542 U.S. at 211. Based on this denial of benefits, the plaintiffs could have paid for the treatment themselves and then sought reimbursement under § 502(a)(1)(B), or sought a preliminary injunction. Id. Likewise, in Cleghorn, the Ninth Circuit found that the plaintiff's claim could be brought under § 502(a) because the plaintiff only sought to receive benefits under his ERISA plan. 408 F.3d at 1225.
When the Ninth Circuit has found that a claim could not be brought under § 502(a), the claim arose independent of an ERISA plan. In Abraham, the plaintiffs were former employee-shareholders of an employee-owned garbage company, some of whom participated in the defendant's ESOP. 265 F.3d at 816. The defendant's ESOP later purchased the plaintiffs' shares of the company in exchange for long-term notes as part of a leveraged buyout of company stock. Id. The notes were to be paid in accordance with ERISA regulations for exempt transactions, and were governed by an indenture agreement that specifically stated it was governed by California law. Id. at 816-17. When the defendant defaulted, the plaintiffs brought suit alleging state law causes of action based on the defendant's conduct that resulted in the plaintiffs' losses from the defendant'sdefault. Id. at 817-18. The court ultimately found that these claims were not displaced by § 502(a) because the plaintiffs were "not seeking relief on behalf of an ERISA plan." Id. at 824. Instead, the claims were based on the plaintiff's status as note holders, and the duties owed by the defendants to their note holders. Id. It was irrelevant whether a plaintiff participated in the ESOP because the plaintiffs were bringing claims that were not dependent "upon any rights that are conferred, enforced, or governed by ERISA ()." Id. The plaintiffs' claims were identical regardless of whether an individual participated in the ESOP because they were not suing for enforcement of the ESOP terms. Id.
The Ninth Circuit also rejected a complete preemption defense in Marin General Hospital, which found that the plaintiff's claims could not be brought under § 502(a) because it arose out of a separate contract independent of an ERISA plan. 581 F.3d at 947. There, the plaintiff was a hospital that had confirmed that a prospective patient had health insurance through an ERISA plan by calling the defendant, the plan's administrator. During the call, the defendant agreed to cover ninety percent of the patient's medical expenses. However, when the plaintiff sought payment, the defendant only paid the portion owed under the ERISA plan. Id. at 943. The Court found that the plaintiff's claim did not arise under ERISA because the plaintiff was seeking an additional amount "precisely because it [wa]s not owed under the patient's ERISA plan." Id. at 947. Unlike the plaintiff's claims in Davila, which was for denial of coverage promised under an ERISA plan, the plaintiff's claims in Marin General Hospital was for coverage costs outside the scope of an ERISA plan. Id. These costs were thus based on a contract independent of the ERISA...
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