Opinion
No. C 02-02520 WHA
July 19, 2002
INTRODUCTION
In this ERISA case, in two separate motions defendant Standard Insurance Company seeks dismissal of the complaint and realignment of the parties such that the Eldonna M. Christie, M.D., Inc. Long Term Disability Plan is considered a plaintiff. This order addresses both motions. It DENIES Standard's motion to dismiss, as Standard has not shown beyond peradventure that plaintiff cannot prove a set of facts that would avoid preemption. This order also GRANTS Standard's motion to realign the parties for purposes of discovery. Finally, it DENIES plaintiffs request, raised in her briefs, for leave to amend.
STATEMENT
Plaintiff Eldonna Christie is a California resident. Defendant Standard Insurance Company is an insurance company doing business in California. Standard issued a long-term disability policy insuring the employees of plaintiffs medical practice, Eldonna M. Christie, M.D., Inc., including plaintiff herself. The complaint does not specify how many employees plaintiff had at the time the policy was issued. The other named defendant is the Eldonna M. Christie, M.D., Inc., Long Term Disability Plan. The complaint does not specify what, exactly, the Plan is or does. It merely asserts that the Plan is "alleged by Standard to be a long-term disability plan providing benefits to employees of the medical practice of Eldonna Christie" through the insurance policy issued by Standard (Compl. ¶ 4).
According to the complaint, under the Standard policy long-term disability benefits were to be paid in the event of total disability. Plaintiff alleges that at all relevant times, she complied with the material policy provisions. While the policy was in effect, plaintiff became disabled and entitled to benefits. In a declaration filed in opposition to Standard's motion to dismiss, plaintiff asserts that she stopped seeing patients in September 1998 after becoming disabled. Plaintiff states that she nevertheless kept her office open, hoping she could sell her practice (Christie Decl. ¶ 1). Returning to the complaint, plaintiff applied for disability benefits on or about October 2, 1998. Although Standard paid benefits beginning on or around December 16, 1998, these benefits were allegedly less than those required under the policy because Standard improperly calculated the "benchmark" income period upon which the benefit payments were set.
In her declaration, plaintiff states she closed her medical practice in March 1999 and has not done business since then (Christie Decl. ¶ 2). Although plaintiffs complaint does not directly aver that Standard ever terminated her policy, she does say as much in her brief, and supports this allegation with an internal memorandum, assertedly from Standard, in which one Standard employee reported that another Standard employee "tried to explain to Dr. Christie she cannot have a policy for a business that does not exist and it will not affect LTD" and that the other employee "will be terminating policy as of March 1, 1999 and issuing a refund of premiums" (Grey Exh. 2). Plaintiff also states in her declaration, "Shortly after I closed my office, Standard Insurance informed me it would be canceling the Long Term Disability Policy it had provided and under which I had made a claim for disability benefits. I was told that this cancellation was due to the fact that my business no longer existed" (Christie Decl. ¶ 3). Standard asserts that it never did terminate the policy (MTD Reply 2).
Again turning back to the complaint, plaintiff alleges that on February 23, 2001, Standard advised her that benefits would cease, and in fact no further benefits have been paid. This failure to pay, along with the asserted failure to pay the proper monthly benefits prior to the termination of benefits, represent the gravamen of the complaint plaintiff filed in state court on April 30, 2002. The complaint sets forth three causes of action: (1) breach of contract (against Standard); (2) breach of the covenant of good faith and fair dealing (against Standard); and (3) violation of ERISA (against the Plan). Standard removed the case to this court, asserting both diversity and federal-question jurisdiction. Standard then moved to dismiss the state-law claims against it and to realign the parties such that the Plan is considered a plaintiff.
ANALYSIS
Standard has filed a motion to dismiss under FRCP 12(b)(6) and a motion to realign the parties. A motion to dismiss under FRCP 12(b)(6) should not be granted unless it appears beyond a doubt that the plaintiff "can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). When attacked pursuant to FRCP 12(b)(6), well-pled allegations in a complaint must be treated as true, and all reasonable inferences drawn in the plaintiffs favor. North Star Int'l v. Arizona Corp. Comm'n, 720 F.2d 578, 580 (9th Cir. 1983). Conclusory allegations of law and unwarranted inferences, however, are insufficient to defeat a motion to dismiss. In re Verifone Sec. Litig., 11 F.3d 865, 868 (9th Cir. 1993).
Both Standard and plaintiff have submitted materials outside the complaint in connection with Standard's motion to dismiss. Standard's submission, part of the Eldonna M. Christie, M.D., Inc., Long Term Disability Plan, may be considered in connection with its motion since it was incorporated by reference into the complaint and its authenticity is unchallenged. Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998). Plaintiff's submissions will be addressed later in this order.
1. ERISA Preemption.
Standard's first argument is that plaintiffs state-law claims are preempted by ERISA. Section 514(a) of ERISA, 29 U.S.C. § 1144 (a), provides:
Except as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title.
The preemption provision concerns laws that relate to employee benefit "plans." In the ERISA context, an employee welfare benefit plan is:
any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment. . .29 U.S.C. § 1002(1).
* * *
The caselaw concerning ERISA preemption is replete with decisions reached on a full record at the summary-judgment stage; preemption rulings on motions to dismiss are few and far between. The multiple factual disputes scarring the parties' briefs — some supported by citations to evidence, some not — demonstrate why the preemption question is generally ill-suited for resolution at the motion-to-dismiss stage. The existence of an ERISA plan is a question of fact, to be answered in light of all the surrounding facts and circumstances from the point of view of a reasonable person. Harper v. American Chambers Life Ins. Co., 898 F.2d 1432, 1433 (9th Cir. 1990). Indeed, Standard turns the FRCP 12(b)(6) inquiry on its head when it asserts, "Plaintiff pleads facts sufficient to support the existence of an ERISA plan" (MTD Br. 2, n. 2). The issue here, with a motion to dismiss, is whether plaintiff has pled, or could establish consistently with its complaint, any set of facts that would avoid preemption. Specifically, the issue is whether plaintiffs policy unequivocally is or was at relevant times an ERISA plan, given the circumstances surrounding its purchase and the alleged occurrences thereafter.
Given that plaintiff itself has made some spotty contributions to the record, it arguably would be permissible to treat this as a motion for summary judgment. See San Pedro Hotel Co. v. City of Los Angeles, 26 159 F.3d 470, 477 (9th Cir. 1998). Standard has not moved for summary judgment, however, and this order declines to do so sua sponte.
The question presented by Standard is whether plaintiffs state-law claims for breach of contract and breach of the duty of good faith and fair dealing are incontestably preempted because (1) the Standard policy is subject to ERISA regulation as an ERISA plan, or (2) plaintiffs state-law claims are so related to an ERISA plan that they are preempted. Waks v. Empire Blue Cross/Blue Shield, 263 F.3d 872, 875 (9th Cir. 2001). In certain circumstances, a commercially purchased insurance policy can constitute an ERISA plan. Randol v. Mid-West Nat'l Life Ins. Co., 987 F.2d 1547, 1550-51 n. 5 (11th Cir. 1993). The Ninth Circuit, however, recently held that when an insurance policy is converted from a group policy (covered by ERISA) to an individual one, claims pertaining to the individual policy are not preempted by ERISA. The individual policy is not an ERISA plan itself because an employee benefit plan must cover at least one "employee" to constitute an ERISA benefit plan. An individual policy, even one converted from a group policy, covers only the individual, in his personal capacity. Waks, 263 F.3d at 875. Nor, Waks held, are certain state-law claims concerning the individual policy so related to an ERISA plan that they are preempted. Id. at 876. Waks would seem to indicate that, at least under certain facts consistent with the complaint, the policy at issue here might not represent an ERISA plan (and claims concerning the policy would not be related to a plan), at least after the cessation of plaintiffs business.
The owner of a business is not considered an employee for purposes of determining the existence of an ERISA plan. 29 C.F.R. § 2510.3-3 (c)(1), (2). There is also a "safe harbor" for some group or group-type insurance programs. 29 C.F.R. § 2510.3-1 (j).
Standard argues that the outcome in Waks hinged on the fact that the policy in that case had been converted from a group policy to an individual one. This argument confuses what was sufficient in Waks with what would be adequate in another case. Waks rested its decision on policy grounds, i.e., whether preemption would serve the two central objectives of ERISA regulation: protection of employee interests, and administrative ease for employers. 263 F.3d at 875. It noted, "in this case ERISA preemption would be an absurd result because there is no ERISA plan and no administrator. [The employer] ceased operations years ago, and the ERISA plan was terminated at that time. State law therefore cannot impose conflicting requirements on any employer or ERISA plan administrator." Id. at 876. It would be possible plaintiff to prove facts conducive to a similar outcome here. Plaintiff asserts that no plan exists after her practice's asserted closure. She claims that soon thereafter Standard notified her that group policy was canceled, which may have served a similar policy function as conversion. It is intimated in the briefs that there are no other participants at this time. These facts would all be relevant to a determination whether, under Waks, an ERISA plan exists (or existed at relevant times), or whether plaintiffs state-law claims are so related to a plan that they are preempted.
Indeed, it has recently been noted that notification of an insurer, by an insured, that he is no longer employed or that his company is out of business would serve a similar function as conversion, lowering administrative costs while allowing the insurer to adjust the premiums from group to individual level. Brown v. Paul Revere Life Ins. Co., 2002 WL 1019021 at *9 (W.D.Pa. May 20, 2002).
Standard notes that the definition of an employee benefits plan includes "any plan, fund program which was heretofore or is hereafter established or maintained by an employer. . . Standard emphasizes the disjunctive "or" in "established or maintained." It argues that (1) the policy was obtained for group benefits; thus (2) it was "established" for the purpose of providing benefits; therefore (3) it is a "plan." Even if this accurately stated the facts of this case, this syllogism is in tension with Waks. In Waks, the original group policy was plainly "established" for the purpose of providing group benefits, only to be converted into an individual policy. In determining whether there was an ERISA plan, however, Waks looked only at the converted individual policy. Whether the original policy was established for the purpose of providing benefits was irrelevant, because of the conversion. Since this order has found that events comparable to a conversion might have taken place here, Standard's argument fails.
This conclusion comports with Ninth Circuit precedent. Other decisions finding state-law claims preempted are distinguishable in that they involved situations where the company obtaining the insurance was by all indications still in business and/or had multiple employees on a policy, leading to the possibility of conflicting requirements. E.g., Qualls v. Blue Cross of California, Inc., 22 F.3d 839, 843 n. 4 (9th Cir. 1994). The decision most amenable to Standard's view, Peterson v. American Life Health Ins. Co., 48 F.3d 404 (9th Cir. 1995), is likewise distinguishable. In Peterson, a partner in a company (Peterson) obtained a short-term group insurance policy for three people — himself, his partner, and their one employee. The policy was intended to provide coverage while the firm secured a long-term policy with another insurer. The company moved coverage for the other partner and the employee to the other insurer as intended, but Peterson remained on the short-term policy. At some later point, Peterson underwent heart bypass surgery, and had his claim for expenses denied by the insurer on the first policy. Id. at 406. Peterson filed suit. The insurer moved to dismiss Peterson's state-law claims on the basis of ERISA preemption. The district court held that ERISA preempted the claims, and Peterson appealed. Id. at 407.
Standard asserts that Qualls stands for the proposition that "the existence of an ERISA plan continues even after the business through which the plan operated is closed." Simply put, Standard is wrong. Qualls does not stand for this proposition. Qualls dealt with the quite different situation where an employee leaves a still-functioning employer.
Peterson argued that the policy was not an ERISA plan, because, at the time of his bypass surgery and denial of his claim therefor, the policy covered only him. Peterson found this argument unpersuasive. It held that the "policy was just one component of [the employer's] employee benefit program and that the program, taken as a whole, constitutes an ERISA plan." Ibid. Peterson emphasized that at all times relevant, the employer continued to provide insurance to at least one non-partner employee, and took an active role in the administration of the coverage. Id. at 408. Furthermore, and most pertinently to the present motion, the policy originally covered a non-partner employee in addition to Peterson and his partner. Peterson noted, as Standard does here, that under the statutory definition of a plan, a policy is governed by ERISA if it is "established or maintained by an employer. . . for the purpose of providing [medical insurance] for its participants or their beneficiaries." Ibid., quoting 29 U.S.C. § 1002 (1) (emphasis original).
Particularly at this stage, Peterson's second basis for its holding does not control the outcome here. First, Waks implicitly suggests that it was dicta. 263 F.3d at 976. Second, there was far less indication in Peterson that the policy had somehow been taken outside of ERISA's scope by the parties' actions ( e.g., conversion or cancellation), as plaintiff suggests occurred here. Third, the employer in Peterson was still active and took an active role in the administration of coverage. Especially given Peterson's holding that the policy at issue was intertwined with the rest of a benefit program, more of a risk existed in that situation of exposing the employer to inconsistent obligations — an evil ERISA preemption seeks to avoid.
Given the above, this order concludes it would not be impossible for plaintiff to prove a set of facts that would defeat Standard's preemption argument. Although plaintiffs claims appear to have accrued at different times, including at some points when there may have been an ERISA plan in effect, the record is too thin and the applicable law too poorly briefed for this order to identify and distinguish the preempted from the non-preempted claims. Standard may, of course, raise its preemption argument again in a timely motion for summary judgment. This order need not and does not address plaintiffs alternative argument that because ERISA allegedly provides her with no adequate remedy, her state-law claims are not in conflict with ERISA and are therefore not preempted.
3. Statute of Limitations.
Next, Standard argues that plaintiffs challenge to Standard's determination of pre-disability earnings is barred by the three-year statute of limitations under the plan (Standard Exh. A at 29). Standard makes the bald assertion that "plaintiff was informed of Standard's calculation of pre-disability earnings on April 1, 1999, and acknowledged receipt of Standard's calculation on April 2, 1999." These facts are not in the complaint; indeed, they are nowhere in the record. They are merely the assertions of counsel. Even though the dates in the complaint may lie outside the window for bringing suit, dismissal of a claim on statute-of-limitations grounds can be granted "only if the assertions of the complaint, read with the required liberality, would not permit the plaintiff to prove that the statute (had been) tolled." Cervantes v. City of San Diego, 5 F.3d 1273, 1275 (9th Cir. 1993). Given that Standard itself admits to a notification date well after the date when benefits began to be paid (December 16, 1998, according to the complaint), this too is an issue better resolved on an improved record at summary judgment.
4. Jury Trial.
Since this order has held that plaintiffs state-law claims will not be dismissed at this point, Standard's motion to strike plaintiffs demand for a jury trial is denied without prejudice to raising this issue again at summary judgment.
5. Leave to Amend.
Plaintiff has requested leave to amend her complaint to name Standard as a defendant on her ERISA claim. Plaintiff argues that Everhart v. Allmerica Financial Life Ins. Co., 275 F.3d 751 (9th Cir. 2001), "unequivocally prohibits a cause of action for benefits by an insured against an insurer under ERISA" (MTD Opp. 19), but requests leave to amend in the event that the contrary is found. Plaintiff overstates Everhart's holding. Everhart only held that a particular section of ERISA, 1132(a)(1)(B), "does not permit suits against a third-party insurer to recover benefits when the insurer is not functioning as the plan administrator." Id. at 756 (emphasis added). See also Rush Prudential HMO, Inc. v. Moran, ___ U.S. ___, 122 S.Ct. 2151, 2158 n. 3 (2002) (mentioning Everhart in dicta). Everhart did note two lines of precedent in the Ninth Circuit, one holding that a claim under Section 1132(a)(1)(B) could only be brought against the plan, the other holding that a claim under this section could be brought against a plan administrator. Yet it did not bar suits against an insurer under any other section of ERISA as may be applicable. Nor did it resolve the tension between the two lines of precedent concerning suits against plan administrators, since the distinction was irrelevant to the case before it. Id. at 754.
In her opposition to Standard's motion to realign the parties, however, plaintiff explicitly concedes that Standard is not the plan administrator (MTR Opp. 5). Given this admission, under Everhart leave to amend to add Standard to plaintiffs Section 1132(a)(1)(B) claim would be futile. Plaintiff does not request leave to bring a claim against Standard under any other section of ERISA. Leave to amend is therefore denied.
6. Realignment of Parties.
Standard's second motion requests that the Court realign the parties such that the Eldonna M. Christie, M.D., Inc., Long Term Disability Plan is considered a plaintiff, rather than a defendant. This issue is closely related to plaintiffs ERISA claim, because the Plan is only a named defendant as to that claim.
It is evident that this is an unusual case. At least upon one version of the facts, plaintiff obtained a disability policy covering her and her employees, plaintiff later disbanded her practice, plaintiff became the sole participant, Standard canceled the policy, for whatever reason certain benefits were still paid through 2001, and now plaintiff herself is seeking benefits. This is not the usual situation where a plaintiff seeks recovery from an ongoing, vibrant plan. Here, the Plan's current status is unclear; in a letter to Standard's attorneys plaintiffs counsel represented that it no longer exists (Ritchey Exh. D), but plaintiff has named it as a defendant in her complaint.
From a practical standpoint, Standard's motion makes sense. There appears but little doubt that, if and to the extent the Plan still exists, it is controlled by plaintiff. To allow the current alignment would frustrate the adversarial purpose of the judicial system. Furthermore, plaintiffs contention that the Plan no longer exists is inconsistent with her allegation that it represents a necessary defendant because it is an ERISA plan. If the Plan does not exist, there is no ERISA claim against it. As Standard notes in its brief, plaintiff cannot have it both ways. The proper approach, this order holds, is for the Plan to be treated as a plaintiff, at least with regard to discovery.
CONCLUSION
For the foregoing reasons, Standard's motion to dismiss is DENIED. Its motion to realign the parties is GRANTED insofar as the Plan will be treated as a plaintiff for discovery purposes. Plaintiffs request for leave to amend is DENIED.