McLain v. UNUM Life Insurance Company of America et al
MEMORANDUM OPINION AND ORDER re 3 motion to dismiss the action of plaintiff, Eddie McLain. For the reasons stated within, and because the complaint meetsthe standards of Rule 8(a) of the Federal Rules of Civil Procedure, Unum Life and New York Lifes motion to dismiss McLains action is DENIED. Defendants shall answer the complaint by 4:30 P.M., July 9, 2013. Signed by Judge William M Acker, Jr on 6/21/13. (SAC )
2013 Jun-21 PM 03:36
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
UNUM LIFE INSURANCE COMPANY
OF AMERICA and NEW YORK LIFE
CIVIL ACTION NO.
MEMORANDUM OPINION AND ORDER
Insurance Company of America (“Unum”) and New York Life Insurance
Company (“New York Life”) to dismiss the action of plaintiff, Eddie
McLain (“McLain”). Doc. 3. McLain brought suit against Unum and New
York Life for breach of contract and bad faith on March 3, 2013, in
the Circuit Court of Shelby County, Alabama, expressly disclaiming
any reliance upon or relation to the Employee Retirement Income
Security Act (“ERISA”), 29 U.S.C. § 1001 et seq. Defendants removed
the case to this court on April 12, 2013,
based on 28 U.S.C. § §
1331 and 1332. In their notice of removal, defendants assert that
McLain’s state law claims are preempted by ERISA.
For the reasons
stated below, defendant’s motion will be denied, and McLain’s state
law claims will remain.
Because McLain’s claim is not preempted by ERISA, this court
does not have subject matter jurisdiction under 28 U.S.C. § 1331.
However, the case will not be remanded because there is diversity
of citizenship between the parties and the amount in controversy
exceeds $75,000. Thus, the court has subject matter jurisdiction
under 28 U.S.C. § 1332.
McLain is a named insured under a disability policy issued to
his former company, Southeastern Learning Systems, Inc. (“SELS”).
SELS is an “S” corporation that, at the time McLain’s policy was
written by New York Life, McLain co-owned with George Perkins
(“Perkins”). The policy is administered by Unum. Prior to becoming
disabled, McLain was the president and sole owner of SELS, which
had learning centers that provided educational tools to students.
In or about February 2009, McLain became disabled due to post
herpetic neuralgia and trigeminal neuralgia after a severe episode
of shingles which required hospitalization. At that time, McLain
disability brought on by injury, but in June 2011, after he
realized that it covered disability due to sickness, he filed a
claim for long-term disability benefits. He alleged, and still
alleges, that he suffers from debilitating migraine headaches,
insomnia, severe chronic pain, and several medication side effects,
Because the motion before the court is to dismiss the claims, the
court must view the complaint in the light most favorable to the plaintiff.
all of which preclude him from performing the duties of his
occupation. On May 30, 2012, UNUM sent McLain a letter denying his
claim. McLain appealed this denial, but his appeal was denied on
January 11, 2013. McLain alleges that, in violation of the law of
Alabama, defendants breached their obligations to McLain under the
insurance contract and did so in bad faith.
In 1993, McLain’s company, SELS, applied for and entered into
the subject disability insurance contract which provided coverage
to McLain in the event he became disabled under the terms of the
policy. The original application for the policy stated that McLain
owned 37.5% of SELS and that SELS was paying 100% of the premiums.
SELS contemporaneously applied for and entered into an insurance
contract with New York Life for disability coverage on Perkins, the
then co-owner of the business. Perkins’s application also indicated
that SELS would pay 100% of the premiums. There is no indication
that any other SELS employee participated in the coverage. McLain
and Perkins later split,
resulting in McLain becoming the sole
SELS shareholder and only person covered by the New York Life
Defendants assert that the policy at issue is governed by
ERISA so that McLain’s state law claims are completely preempted by
the remedial scheme in 29 U.S.C. § 1132. Based upon this assertion,
defendants move to dismiss McLain’s state law claims, leaving him
with ERISA’s plan enforcement provision as his only avenue of
relief and requiring him, if he wishes to proceed, to recast his
complaint in terms of ERISA.
Complete preemption or “super preemption” “arises out of
Congress’s creation of a comprehensive remedial scheme in [ERISA]
for loss or denial of benefits.” Butero v. Royal Maccabees Life
Ins. Co., 174 F. 3d 1207, 1211 (11th Cir. 1999). As the United
States Supreme Court noted in Davila v. Aetna Health, Inc., 542
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.” Because of
this, state law claims for denials of benefits and/or breaches of
fiduciary duty under an ERISA plan are completely preempted by
ERISA, and federal courts have original jurisdiction over such
However, for complete ERISA preemption to exist, four
elements must be established: (1) an ERISA plan must exist; (2) a
plaintiff must have standing to sue under the plan; (3) a defendant
must be an ERISA entity; and (4) the complaint, in some part, must
seek relief that is available under § 1132(a).
Butero 174 F.3d at
The first element, that an ERISA plan exists, is met when
“(1)a ‘plan, fund, or program’ (2) established
or maintained (3) by an employer or by an
employee organization, or by both, (4) for the
providing medical, surgical,
hospital care, sickness, accident, disability,
death, unemployment or vacation benefits,
apprenticeship or other training programs, day
care centers, scholarship funds, prepaid legal
participants or their beneficiaries.”
Donovan v. Dillingham, 688 F. 2d 1367 (11th Cir. 1982). Defendants
contend that all of these requirements are met. Plaintiff does not
requirements from Donovan, but cites several cases in which courts
have found that there was no ERISA plan, giving their reasons that
may not fit neatly into the Donovan elements, but that this court
finds persuasive. Before discussing them, the court commends to the
parties Hensley v. Philadelphia Life Ins. Co., 878 F. Supp. 1465
(N.D. Ala. 1995) in which this court quoted La Buhn v. Bulkmatic
Transp. Co., 644 F. Supp. 942, 948 (N.D. Ill. 1986), as follows:
As is typical of these preemption cases, a
removing defendant tows the case into the
federal harbor only to try to sink it once it
is in port.
These defendants conspicuously do not advise McLain how to amend
his complaint to state a cause of action under ERISA, much less one
that would entitle him to punitive damages.
In Slamen v. Paul Revere Life Ins. Co., the Eleventh Circuit
[N]ot all welfare benefit plans that meet
these five criteria are governed by ERISA. . .
. [P]lans, funds or programs under which no. .
. employees or former employees participate
are not employee welfare benefit plans under
Title I of ERISA.
Id. at 1004, citing Donovan, 688 F. 2d 1367. This is consistent
with the regulation that clarifies the statutory definition of
“employee benefit plan” as follows: [f]or purposes of Title I of
[ERISA] and this chapter, the term ‘employee benefit plan’ shall
not include any plan, fund or program. . . under which no employees
are participants covered under the plan.” 29 C.F.R. § 2510.3-3(b).
McLain asserts that following the Eleventh Circuit’s reasoning in
Slamen, in which that court found that there was no ERISA plan
because the plan did not provide benefits to any employees other
than the owner of the business, his plan is not an ERISA plan. The
facts now before the court show that McLain and his co-owner were
the only participants in the “plan.” If Slamen is applicable, this
arrangement is not an ERISA plan. However, in Slamen there was only
one owner, not two, as in this case. Perhaps this explains why Unum
took so long to decide whether this controversy is governed by
ERISA. Its confessed doubt on the subject speaks loudly.
The Supreme Court’s reasoning in Raymond B. Yates, M.D.,P.C.
informative. In its discussion of whether working owners qualify as
participants in ERISA plans, the Court looked to various sections
The Court stated that “Title I of ERISA and related IRC
owners in covered benefit plans” when their employees participate
as well. Id. at 3. The Court reached this conclusion because Title
I contains exemptions from some fiduciary requirements for plans
that include working owners as participants, and “[e]xemptions of
this order would be unnecessary if working owners could not qualify
as participants in ERISA-protected plans in the first place.” Id.
The Court went on to look to Title IV of ERISA which “does not
substantial owners’ 29 U.S.C. § 1321(b)(9) (emphasis added),” but
does apply to plans “in which substantial owners participate along
with other employees. Id. This reasoning led the Supreme Court to
conclude that Yates was a participant in an ERISA plan because it
also covered his employees. The situation in Yates was markedly
different from the instant casebecause the other participants in
Yates’s plan were not owners like the one other participant in
McLain’s “plan.” McLain’s situation is more similar to Slamen,
where only an owner was covered under the policy, and no employees.
Furthermore, the Supreme Court looked to Title IV for instruction.
When this court looks to Title IV, its provisions regarding plans
that are established only for substantial owners necessarily lead
this court to the conclusion that this plan is not an ERISA plan.
McLain also cites a case in which the Fifth Circuit held that
ERISA did not apply to particular insurance coverage because only
partners were covered. See Robertson v. Alexander Grant & Co., 798
F. 2d 868 (5th Cir. 1986). Robertson is consistent with the Supreme
Court’s later statements in Raymond B. Yates, M.D., P.C. Profit
Sharing Plan v. Hendon, 541 US 1 (2004), that “[p]lans that cover
only sole owners or partners and their spouses. . . fall outside of
corporation rather than a partnership, but an “S” corporation with
only two shareholders is analogous to and indistinguishable from a
partnership for the purposes of defendants’ motion. The reasoning
that exempts a plan covering only partners from ERISA also applies
The plan at issue here covered only two owners and no
employees. Therefore, it is much more similar to a plan covering
For the above stated reasons, and because the complaint meets
the standards of Rule 8(a) of the Federal Rules of Civil Procedure,
Unum Life and New York Life’s motion to dismiss McLain’s action is
DENIED. Defendants shall answer the complaint by 4:30 P.M., July 9,
Done this 21st day of June, 2013.
WILLIAM M. ACKER, JR.
UNITED STATES DISTRICT JUDGE
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