Opinion
NO. 1:01CV444-D-B
March 18, 2002
OPINION DENYING MOTION TO REMAND
Presently before the court is the Defendants' motion to remand. Upon due consideration, the court finds that the motion should be denied.
A. Factual Background
Defendant Business Partners, Inc. previously owned and operated a franchise in Tupelo, Mississippi, granted by Check Mate Systems, Inc., the franchiser. Business Partners furnished personnel services to clients, who were small businesses, including preparing and paying employee wages; collecting, reporting and paying applicable federal, state and local payroll taxes; and administering employee benefit plans. Business Partners had separate client service agreements with Victor Gray, M.D., d.b.a. Spine and Sports Medicine; Southern Housing, Inc.; and Gresham Realty (Collectively "Client/Employers"). The Plaintiffs in this action are twelve (12) individuals who worked for these Client/Employers.
Defendants assert that each Client/Employer's employees was required to apply for employment with Business Partners, and Business Partners was the W-2 employer for purposes of record keeping. The arrangement appears to be similar to that in Texas v. Alliance Employee Leasing Corp., 797 F. Supp. 542, 545 (N.D.Tex. 1992), where the court stated:
the employer purports to "fire" its employees, who are instantly "hired" by Alliance [personnel company]. The employees are then instantly "leased" back to the original employer, who is now called the "client company." The "client companies" continue to provide all the workers' facilities and tools, to supervise the workers with the same personnel, and to exercise actual control over the workers' job performance.
Business Partners administered an employee benefit plan that provided health benefits for each of the three Client/Employers, and all of the Plaintiffs participated in this plan. During the months of November 2000 to April 2001, the Plaintiffs sought treatment from medical providers. The Plaintiffs submitted these medical claims to Business Partners, Inc. for payment.
Defendant NationsEmployer, Inc., purchased the assets of Business Partners, primarily the client lists, effective April 1, 2001. On the same date, NationsEmployer assumed the franchise granted Business Partners by Check Mate. Plaintiffs assert that their claims are primarily concerned with the benefit package in place prior to NationEmployer's purchase of assets.
The Plaintiffs filed suit in the Circuit Court of Lee County, Mississippi, on October 11, 2001, against Defendants Business Partners, Inc.; NationsEmployer, Inc.; as well as four individual Defendants Gray Hooker; Joe Crestman; James McDaniel; and Paul Robinson, who are officers and shareholders of the Corporate Defendants. Plaintiffs allege that they submitted their medical claims to Business Partners for payment, but Business Partners, through its officers, has wrongly failed to take any action or issue payments to Plaintiffs' medical providers. Plaintiffs assert causes of action for, inter alia, intentionally defrauding Plaintiffs, breach of fiduciary duty, and negligence. Plaintiffs request injunctive relief, reimbursement and punitive damages. The Defendants removed the action to this court on November 20, 2001, pursuant to 28 U.S.C. § 1331 and 1441. Thereafter, on or about December 6, 2001, the Plaintiffs motioned the court to remand this matter to state court.
B. Standard for Remand
A defendant may remove a civil action from state court to federal court provided that the federal court has original jurisdiction over the plaintiff's claims. 28 U.S.C. § 1441(a). In this case, the propriety of Defendants' removal depends upon whether any of the Plaintiffs' claims arise under federal law, thereby giving this court original federal question jurisdiction over the claims. See 28 U.S.C. § 1331.
An action arises under federal law when the face of the plaintiff's "well pleaded complaint" raises a federal issue. Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 9-12, 103 S.Ct. 2841, 2846-47, 77 L.Ed.2d 420 (1983). The well-pleaded complaint rule is qualified, however, by the complete preemption doctrine. If Congress has completely preempted a particular area of the law, any civil complaint raising a claim in that area is necessarily federal in character. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 62-63, 107 S.Ct. 1542, 1545-46, 95 L.Ed.2d 55 (1987). A federal cause of action is then, in effect, substituted for the plaintiff's state claim, making it one that arises under federal law, and thereby conferring removal jurisdiction upon the federal court. Tatum v. Blue Cross and Blue Shield of Miss., No. 3:99CV158, 2000 WL 33324361 (N.D.Miss. Oct. 18, 2000). ERISA is one such federal statute that completely preempts some actions brought in state court, provided that the claims "relate to" an ERISA-qualified employee benefit plan. 29 U.S.C. § 1144(a); Metropolitan Life Ins. Co., 481 U.S. at 62. When subject matter jurisdiction is factually challenged, the burden is on the removing party to show that jurisdiction exists. Willy v. Coastal Corp., 855 F.2d 1160, 1164 (5th Cir. 1988). As such, if the Plaintiffs' state law claims relate to an ERISA benefit plan, their claims are preempted by ERISA and arise under federal law, rendering Defendants' removal of this action proper.
C. Discussion
There is no question in the present case that the Plaintiffs' state law claims relate to an insurance plan. The only issue is whether the plan in question is an ERISA plan. The plan deals with a subject matter — health insurance — which fits comfortably within the customary meaning of employee welfare benefit plan. But whether the plan is an ERISA plan requires a more probing inquiry.
The Fifth Circuit has devised a comprehensive test for determining whether a particular plan qualifies as an "employee welfare benefit plan" under ERISA. The court asks whether a plan: (1) exists; (2) falls within the safe-harbor provision established by the Department of Labor; and (3) satisfies the primary elements of an ERISA "employee benefit plan" — establishment or maintenance by an employer intending to benefit employees. Meredith v. Time Ins. Co., 980 F.2d 352, 355 (5th Cir. 1993). This analysis is informed by reference to ERISA itself, including germane indications of congressional intent; and, to the extent Congress has failed to state its intention on the precise issue in question, we refer to permissible interpretations by the agency charged with administering the statute — the Department of Labor. Meredith, 980 F.2d at 355. Whether a plan constitutes an "employee welfare benefit plan" is a question of fact. MDPhysicians Assoc., Inc. v. State Bd. of Ins., 957 F.2d 178, 182 (5th Cir. 1992) (citations omitted).
At the outset, any court confronted with the question "whether a particular arrangement constitutes an employee welfare benefit plan under ERISA `must first satisfy itself that there is in fact a plan at all.'" Meredith, 980 F.2d at 355 (citations omitted). Neither party disputes that there was a plan.
The second prong of this analysis applies the safe-harbor provision promulgated by the Department of Labor. 29 C.F.R. § 2510.3-1(j) reads:
(j) Certain group or group-type insurance programs. For purposes of Title I of the Act and this chapter, the terms "employee welfare benefit plan" and "welfare plan" shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which
(1) No contributions are made by an employer or employee organization;
(2) Participation in the program is completely voluntary for employees or members;
(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and
(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.
Defendants contend that based on this safe harbor provision, the plan is not exempt from ERISA because the Client/Employers each contributed to the health plan. Defendants assert that Gresham Realty paid 100% of the contributions for Plaintiff Anita Barnett; Spine and Sports Medicine paid 100% of the contributions for its participating employees, including Plaintiffs Tula Young, Peggy Hamilton and Melissa Fuggitt; and Southern Housing paid 100% of the contributions for Plaintiffs Richie and Linda Sweeney and 50% of the premiums for the remaining Plaintiffs who were employed by it. Plaintiffs do not contest this. See McDonald v. Provident Indem. Life Ins. Co., 60 F.3d 234, 236 (5th Cir. 1995) (stating "[b]ecause McDonald Equipment [employer] paid the insurance premiums, it was not" exempt from ERISA under the safe harbor).
As such, the first two prongs support the finding that the plan was an ERISA plan. The court must now examine the third prong, which is what the parties dispute.
The plan must also meet the third prong in order to qualify as an "employee welfare benefit plan" under ERISA. It must satisfy the primary elements of an ERISA "employee benefit plan." Meredith, 980 F.2d at 355. An ERISA-covered "employee welfare benefit plan" is defined as:
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 of insurance or otherwise . . . benefits. . . .29 U.S.C. § 1002(1). A prerequisite of an ERISA-covered employee welfare benefit plan, therefore, is that the plan must be established or maintained by an employer, and the employer must have a certain intent — a purpose to provide benefits to its employees. Meredith, 980 F.2d at 355; Hansen v. Continental Ins. Co., 940 F.2d 971, 977 (5th Cir. 1991).
The Plaintiffs argue that the group benefit plan was not established or maintained by any employer, and that the Defendants merely "form an entrepreneurial venture that contracts with individual employers' "subscribing employers" to receive a package of administrative services and benefits in exchange for a fee." Defendants essentially make two arguments. Defendants argue that (1) Business Partners and NationsEmployers fit the statutory definition of employer, and (2) even if the court finds that Business Partners and NationsEmployers were not employers, their Client/Employers were statutory employers, and each established valid ERISA plans. As such, the Plaintiffs' claims relate to an ERISA plan.
1. Was Business Partners an "Employer"
Other courts have dealt with the issue of whether similar personnel companies who purport to hire employees and lease them back to the original companies were "employers" under ERISA. See Glover v. Jobmate of Mississippi, Inc., 887 F. Supp. 926 (S.D.Miss. 1995); Alliance Employee Leasing Corp., 797 F. Supp. 542. ERISA defines an "Employer" as "any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity." 29 U.S.C. § 1002(5). Thus, to determine whether Defendant Business Partners was an "employer" within the meaning of ERISA, Defendants would have to prove that it acted in one of two ways: either Business Partners acted directly as an employer in relation to an employee benefit plan or it acted indirectly in the interests of an employer in relation to an employee benefit plan. MDPhysicians Assoc., Inc., 957 F.2d at 182-83, citing 29 U.S.C. § 1002(5).
Business Partners argues that it was acting as an employer (jointly with the three Client/Employers) over the employees. The courts in Glover and Alliance Employee Leasing Corp., rejected similar arguments. Glover, 887 F. Supp. at 931; Alliance Employee Leasing Corp., 797 F. Supp. at 545-46. There are several factors that are determinative of whether someone is an employer. Glover, 887 F. Supp. at 931. The factor that is determinative of whether someone is an employer is whether that person has "the right to control the manner and means by which the product is accomplished." Id. As Plaintiffs point out, there is no evidence to suggest that Business Partners had any authority, or knowledge for that matter, to direct and control how an employee did their substantive job in the real estate or medical industry. Business Partners was simply a personnel company.
The court is of the opinion that while the logic of both Glover and Alliance is sound, the arguments and facts of the present case are somewhat different. For the reasons discussed below, the court is of the opinion that whether Business Partners can be labeled an "employer" is not necessary to this decision.
2. The Client/Employers were Statutory Employers, and each established ERISA plans
The Defendants argue in the alternative, that even if the court finds that Business Partners was not an employer, each Client/Employer established and/or maintained ERISA plans. The Plaintiffs appear to imply that the plan is a "multiple employer welfare arrangement" as defined by ERISA, commonly referred to as a "MEWA" and rely heavily on MDPhysicians. The parties in MDPhysicians agreed that the Plan at issue was a "MEWA." MDPhysicians Assoc., Inc., 957 F.2d at 181. The term "MEWA" includes all arrangements "established or maintained for the purpose of offering or providing" certain benefits "to the employees of two or more employers . . . or to their beneficiaries." Id. (citing 29 U.S.C. § 1002(40)(A)). In this case, as best as the court can tell, there is no such agreement between the parties. The Defendants counter this by asserting that the Client/Employers established separate ERISA plans. Defendants note that in the cases Plaintiffs rely on, the client/employers would have established separate ERISA plans if they paid all or part of the premiums for participating employees. The Defendants point out that in Glover, which involved similar personnel franchisees, the court stated "[t]here . . . appears to be no dispute that some of the subscribing employers, namely those which paid all or part of the premiums for their employees' coverage, established ERISA plans." Glover, 887 F. Supp. at 935-36.
The Fifth Circuit in MDPhysicians emphasized that it was merely deciding the narrow issue presented on appeal: "[w]hether the multiple employer welfare arrangement," the Plan at issue, "constitutes an EWBP governed by ERISA." MDPhysicians, 957 F.2d at 182, n. 4. The court did "not decide whether any of the Subscribing Employers directly established or maintained `single employer' EWBPs covered by ERISA — that is, `whether each employer who subscribed to the [MDP Plan] thereby established its own individual ERISA plan.'" Id.
After MDPhysicians, the Fifth Circuit rejected an argument that a multiple employer trust was not an ERISA plan. McDonald, 60 F.3d at 236. The plaintiffs relied on MDPhysicians and argued that the multiple employer trust at issue was established "in association with an insurance company as an entrepreneurial venture, not by employers seeking to provide employee benefits." Id. The Fifth Circuit stated that the trust's status was not dispositive. The court stated, in "determining whether an ERISA plan exists, we must focus on the employer and its involvement with the plan." Id. The dispositive issue was whether the employer's subscription to the trust constituted an ERISA plan. Id. The McDonald court noted that in MDPhysicians, the status of the multiple employer trust was dispositive because the issue there was whether the state could regulate the MET. Id. at n. 6. The court noted that McDoanld Equipment (employer) purchased the insurance, selected the benefits and distributed enrollment and claim forms. Id. The court concluded that a reasonable fact-finder could have only reached one conclusion: McDonald's subscription to the trust constituted an ERISA plan. Id.
Similarly, in Rodriguez v. Pacificare of Texas, Inc., 980 F.2d 1014, 1017, n. 2. (5th Cir. 1993), the court stated "[i]n the present case, Culligan's [employer] employees contributed, through payroll deductions, a portion of the insurance premiums; Culligan paid the balance." The court noted that "[s]uch an arrangement sufficed for the necessary employer relationship to the plan" in Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236, 243 (5th Cir. 1990), "and we likewise find this sufficient here."
For the above mentioned reasons, and based on "the `deliberately expansive' nature of ERISA's preemption provision," see Bullock v. Equitable Life Assur. Soc'y of the United States, 259 F.3d 395, 399 (5th Cir. 2001), the court is of the opinion that the plan was an ERISA plan and federal jurisdiction is proper.
D. Conclusion
In sum, this court concludes that after examining relevant law, removal of this case was proper as the health plan at issue is an ERISA plan. ERISA is a federal statute that completely preempts some actions brought in state court, provided that the claims "relate to" an ERISA-qualified employee benefit plan. 29 U.S.C. § 1144(a); Metropolitan Life Ins. Co., 481 U.S. at 62. Therefore, this court denies Plaintiffs' motion to remand and retains jurisdiction to hear their dispute.
A separate order in accordance with this opinion shall issue this day.
ORDER DENYING MOTION TO REMAND
Pursuant to an opinion issued this day, it is hereby ORDERED that
(1) the Plaintiffs' motion to remand (docket entry 9) is DENIED; and
(2) this cause of action remains in the jurisdiction of the United States District Court for the Northern District of Mississippi.
SO ORDERED.