Heather Studer v. Katherine Shaw Bethea Hospita
Filed opinion of the court by Judge Kanne. AFFIRMED. Diane P. Wood, Chief Judge; Richard A. Posner, Circuit Judge and Michael S. Kanne, Circuit Judge. [6860677-1]  [16-3728]
United States Court of Appeals
For the Seventh Circuit
KATHERINE SHAW BETHEA HOSPITAL,
Appeal from the United States District Court for the
Northern District of Illinois, Western Division.
No. 15 C 50242 — Frederick J. Kapala, Judge.
ARGUED MAY 19, 2017 — DECIDED AUGUST 10, 2017
Before WOOD, Chief Judge, and POSNER and KANNE, Circuit
KANNE, Circuit Judge. Katherine Shaw Bethea Hospital is a
not‐for‐profit healthcare provider in Dixon, Illinois. Heather
Studer worked at the hospital as an occupational therapist un‐
til she resigned. After she resigned, she filed a small‐claims
complaint in Illinois state court, alleging that the hospital vi‐
olated certain provisions of the Illinois Wage Payment and
Collection Act (“IWPCA”) by failing to pay her money that
she had accrued under the hospital’s Paid Days Leave policy.
The hospital removed the suit to federal court, claiming that
Studer’s claim was completely preempted by the Employee
Retirement Income Security Act of 1974 (“ERISA”).
Studer then filed a motion to remand her suit to state
court, challenging the hospital’s preemption claim and assert‐
ing that the district court did not have jurisdiction over her
state‐law claim; the hospital filed a motion for summary judg‐
ment. The district court denied Studer’s motion to remand,
holding that it had federal‐question jurisdiction because
ERISA completely preempted the state‐law claim. The court
then granted the hospital’s motion for summary judgment,
holding that Studer had failed to name the welfare benefit
plan as a defendant, which ERISA requires in most instances.
See Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1490
(7th Cir. 1996) (citing 29 U.S.C. § 1132(d)(2)). In granting the
motion, the court permitted Studer “to file an amended com‐
plaint naming the appropriate defendant and to issue sum‐
mons.” (R. 27 at 6.)
But instead of filing an amended complaint, Studer filed a
Rule 59(e) motion to alter or amend the judgment, again ar‐
guing that ERISA did not preempt her claim. The district
court denied that motion, and this appeal followed. On ap‐
peal, Studer again contends that her IWPCA claim was not
preempted by ERISA. Because we agree with the district
court, we affirm.
Ordinarily, a defendant cannot remove a case to federal
court unless the plaintiff’s complaint demonstrates that the
plaintiff’s case arises under federal law. Aetna Health Inc. v.
Davila, 542 U.S. 200, 207 (2004). This is known as the “well‐
pleaded complaint” rule. Id. (quoting Franchise Tax Bd. of Cal.
v. Constr. Laborers Vacation Tr. for S. Cal., 463 U.S. 1, 9–10 (1983)).
Under this rule, “the existence of a federal defense nor‐
mally does not create statutory ‘arising under’ jurisdiction.”
Id. But there is an exception “[w]hen a federal statute wholly
displaces the state‐law cause of action through complete pre‐
emption.” Id. (quoting Beneficial Nat. Bank v. Anderson, 539 U.S.
1, 8 (2003)). In those circumstances, a defendant can remove a
plaintiff’s state‐law claim if the defendant can show complete
preemption because the state law claim, “even if pleaded in
terms of state law, is in reality based on federal law.” Id. at 208
(quoting Anderson, 539 U.S. at 8).
ERISA is one of those federal statutes with expansive
preemptive power. See Hartland Lakeside Joint No. 3 Sch. Dist.
v. WEA Ins. Corp., 756 F.3d 1032, 1035 (7th Cir. 2014) (“ERISA
… may contain the broadest preemption clause of any federal
statute and completely occupies the field of employees’ health
and welfare benefits … .”). And with the exception of a few
identified circumstances, ERISA “supersede[s] any and all
State laws insofar as they may now or hereafter relate to any
employee benefit plan” created by any employer engaged in
interstate commerce. ERISA § 514(a), 29 U.S.C. § 1144(a).
In Davila, the Supreme Court created a two‐step test to de‐
termine if a plaintiff’s state‐law claim is preempted by ERISA:
a state‐law claim is completely preempted (1) “if an individ‐
ual, at some point in time, could have brought his claim un‐
der” ERISA’s expansive civil enforcement mechanism—
ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B)—and (2)
“where there is no other independent legal duty that is impli‐
cated by a defendant’s actions.” Davila, 542 U.S. at 210. We
consider each step of this test in turn.
Here, to analyze Davila’s first step, we must initially deter‐
mine whether the hospital had created an ERISA employee
welfare benefit plan and, if so, whether Studer was a partici‐
pant in that plan. See ERISA § 502(a)(1), 29 U.S.C. § 1132(a)(1)
(empowering a “participant or beneficiary” of an ERISA plan
“to bring a civil action”). To make these determinations, we
first look at the hospital’s employee benefit policies.
We begin with the Paid Days Leave (“PDL”) policy, which
the hospital created“[t]o provide [its employees] time away
from the work environment in a way that conforms to an in‐
dividual’s lifestyle by allowing paid time off to be used for
vacation, sick, personal, etc.” (R. 17‐2 at 40.) Under the PDL
policy, certain hospital employees would accrue “PDL
hours”—which those employees could use to take days off
from work—based on a variable accrual rate that increased
with the employees’ seniority. (Id.) For example, “[f]ull‐time
regular employees” hired prior to December 20, 2009 with “0‐
9 years of service” accrued 7.38 PDL hours for every 80 hours
of paid work. (Id.) And that accrual rate increased with addi‐
tional years of service. The policy further permitted employ‐
ees to accumulate a maximum of 320 PDL hours at any one
The PDL policy also specifically incorporated other “em‐
ployee benefits” including the “Voluntary Employees’ Benefit
Association” (“VEBA”) plan. (Id.) As discussed in more detail
below, the VEBA plan worked in conjunction with the PDL
policy, further conditioning the accrual of participating em‐
ployees’ PDL hours. The plan also dictated how participating
employees could use those hours after their employment with
the hospital ended.
The hospital contends that this VEBA plan was an ERISA
employee welfare benefit plan. And we agree. ERISA defines
an “employee welfare benefit plan” as
[A]ny plan, fund, or program which was heretofore
or is hereafter established or maintained by an em‐
ployer 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 …
medical, surgical, or hospital care or benefits, or ben‐
efits in the event of sickness, accident, disability,
death or unemployment … .
ERISA § 3(1), 29 U.S.C. § 1002(1).
The hospital intentionally created its VEBA plan to give its
employees ERISA healthcare benefits. In fact, the plan docu‐
ments specifically referenced “ERISA,” providing partici‐
pants with information about their “rights and protections
under [ERISA].” (R. 17‐2 at 29.) And the plan’s stated purpose
was “to provide certain Employees with an opportunity to re‐
ceive reimbursement for eligible Health Care Expenses.” (R.
17‐2 at 5.)
To accomplish this purpose, the plan provided eligible
employees with accounts into which the hospital would de‐
posit money under two circumstances. First, if an employee
“reach[ed] the maximum accumulation of PDL hours al‐
lowed, PDL hours over the maximum [would] be converted
to dollars and deposited to the employee’s VEBA account.” (R.
17‐2 at 42.) And second, upon an employee’s termination, the
hospital would pay that employee any accumulated PDL
hours “up to 80 hours, at the current salary,” but “[t]he re‐
maining hours [would] be converted to dollars and depos‐
ited” into that employee’s VEBA account. (R. 17‐2 at 45.)
Employees could then access the money that they had ac‐
cumulated in their VEBA accounts as reimbursement for qual‐
ifying medical expenses after their employment with the hos‐
pital ended. The VEBA plan also provided employees with a
tax benefit: because any money that employees withdrew
from their VEBA accounts qualified as a reimbursement for
medical expenses, that money would not be included in their
gross incomes and thus would not be subject to federal in‐
come tax. See I.R.C. §§ 105(b), 106.
Based on these facts, we think it’s clear that the VEBA plan
was an employee welfare benefit plan under ERISA.
As a result, we must next determine whether Studer was
a participant in the VEBA plan. ERISA defines a “participant”
as “any employee or former employee of an employer … who
is or may become eligible to receive a benefit of any type from
an employee benefit plan which covers employees of such em‐
ployer.” ERISA § 3(7), 29 U.S.C. § 1002(7).
The hospital’s VEBA plan documents explained that em‐
ployees who worked “a regular work schedule” and who
were “eligible to accrue paid days leave” were automatically
enrolled in the plan. (R. 17‐2 at 5.) Enrolled employees then
were given annual opportunities to waive any further partic‐
ipation. Upon their termination, enrolled employees could ac‐
cess any funds in their VEBA accounts for qualifying medical
expenses. Studer, who worked a regular work schedule and
accrued paid days leave, was automatically enrolled in the
VEBA plan, and she doesn’t argue that she ever waived her
participation in it. Thus, she was a participant in the plan and
became eligible to receive benefits under the plan.
With those conclusions in hand, we now turn to Studer’s
specific claim. When Studer resigned her employment, she
had accrued 251.12 hours of PDL. Following the terms of the
VEBA plan, the hospital paid Studer her hourly rate for 80 of
those hours. It then converted the remaining 171.12 hours into
dollars based on Studer’s hourly rate and moved those dollars
into Studer’s VEBA account. Studer disputes the hospital’s
moving of that money, claiming that she instead should have
been paid directly for those hours.
As a participant in an ERISA benefit plan, ERISA
§ 502(a)(1)(B) empowered Studer to bring a civil action in fed‐
eral court “to recover benefits due to [her] under the terms of
[her] plan, to enforce [her] rights under the terms of the plan,
or to clarify [her] rights to future benefits under the terms of
the plan.” 29 U.S.C. § 1132(a)(1)(B). Although Studer’s argu‐
ment here largely ignores the VEBA plan—and instead fo‐
cuses on an alleged independent legal duty created by the
IWPCA—that argument better suits the second step of
Davila’s preemption test, which we discuss in greater detail
below. For purposes of Davila’s first step, we characterize Stu‐
der’s claim as one focused on the misapplication of benefits
that Studer was allegedly due under the terms of the PDL pol‐
icy, which specifically incorporated the VEBA plan. That is ex‐
actly the type of claim that ERISA permits a plaintiff to bring.
See ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B). Thus, Stu‐
der could have brought her claim under ERISA: Davila’s first
step has been met.
Next, under Davila’s second step, we must determine
whether the hospital’s decision not to pay Studer directly the
monetary equivalent of 171.12 hours of PDL implicated a legal
duty independent of ERISA. Studer claims that it did. She
cites a section of the IWPCA, 820 ILCS 115/5, which requires
“[e]very employer [to] pay the final compensation of sepa‐
rated employees in full, at the time of separation.” That sec‐
tion further provides that, when an employer’s “contract of
employment or employment policy provides for paid vaca‐
tions, and an employee resigns … without having taken all
vacation time earned in accordance with such contract of em‐
ployment or employment policy, the monetary equivalent of
all earned vacation shall be paid to … her as part of … her
final compensation … .” Id.
Studer contends that the 171.12 hours of PDL that she ac‐
crued and for which she was not directly paid was “earned
vacation.” As such, Studer claims that she should have been
paid for those hours as part of her “final compensation” when
her employment terminated. Because the hospital instead
moved that money into her VEBA account, she argues that the
hospital violated the IWPCA’s independent duty “to pay ac‐
crued vacation at the time of an employee’s separation.” (Ap‐
pellant’s Br. at 25.) Based on this alleged violation of an inde‐
pendent duty, Studer contends that her IWPCA claim was not
preempted by ERISA.
We disagree. In making this argument, Studer urges us to
ignore the VEBA plan entirely and instead to consider only
the PDL policy, which she contends is “the source of PDL”
and “is not an ERISA plan.” (Id. at 23.) She then argues that
her IWPCA claim, which she alleges could be adjudicated
without any reference to the ERISA benefit plan, was entirely
independent of ERISA and thus was not preempted by it.
If we were to follow Studer down this path, we might con‐
clude that she is correct. Unfortunately for her, however, we
cannot ignore the VEBA plan here. Under the IWPCA, a sep‐
arated employee is entitled to payment only for “vacation
time earned in accordance with [the employer’s] contract of em‐
ployment or employment policy.” 820 ILCS 115/5 (emphasis
added). At least as applied to hospital employees like Studer
who didn’t waive participation in the VEBA plan, the PDL
policy explicitly conditioned the accrual of PDL and its avail‐
ability posttermination on the terms of that VEBA plan. And
as discussed above, the VEBA plan was an ERISA benefit plan.
So to adjudicate Studer’s IWPCA claim, a court would neces‐
sarily have to interpret the terms of that ERISA benefit plan.
Put differently, because Studer was a participant in the
hospital’s VEBA plan, the hospital would be liable under the
IWPCA only if it failed to pay Studer directly for the PDL time
she was due under the terms of the VEBA plan. This means that
Studer’s IWPCA claim was not “entirely independent of”
ERISA; rather, an interpretation of the ERISA plan “form[ed]
an essential part” of her IWPCA claim. Davila, 542 U.S. at 213.
Thus, despite Studer’s arguments to the contrary, Davila’s sec‐
ond step has also been met. Id.; see also Rice v. Panchal, 65 F.3d
637, 644 (7th Cir. 1995) (“[C]omplete preemption is required
where a state law claim cannot be resolved without an inter‐
pretation of the contract governed by federal law.”).
Because Studer could have brought her claim under
ERISA and because her claim did not implicate a legal duty
independent of ERISA, her claim was completely preempted.
Accordingly, we AFFIRM the district court’s denial of Studer’s
motion to remand, the grant of the hospital’s motion for sum‐
mary judgment, and the denial of Studer’s motion to alter or
amend the judgment.
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