Genesis Specialty Tile & Accessories, LLC et al v. Amerus Life Insurance Company of Iowa et al

Filing 59

ORDER signed by Judge Lawrence K. Karlton on 4/9/2012 ORDERING that Plaintiffs' 14 motion to remand this case to state court is GRANTED, for lack of federal subject matter jurisdiction. In light of the absence of federal subject matter jurisdiction, the court will not address defendants' 8 , 17 , 18 , 19 motions to dismiss. Copy of remand order sent to Sacramento Superior Court. CASE CLOSED. (Zignago, K.)

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UNITED STATES DISTRICT COURT
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EASTERN DISTRICT OF CALIFORNIA
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GENESIS SPECIALTY TILE &
ACCESSORIES, LLC; ELEFTHERIOS
EFSTRATIS; ELEFTHERIOS D.
EFSTRATIS; PATRICIA E.
EFSTRATIS; JESSICA N.
EFSTRATIS; THOMAS A. JOHNSON;
NORA E. RUNDELL,

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NO. CIV. S-11-2489 LKK/DAD
Plaintiffs,

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v.

O R D E R

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AMERUS LIFE INSURANCE
COMPANY OF IOWA; AVIVA LIFE
AND ANNUITY COMPANY f/k/a
AMERUS LIFE INSURANCE
COMPANY, a corporation;
RAYMOND F. OLMO, an individual,
R.F. OLMO & ASSOCIATES, INC.,
a corporation; MARSHALL
KATZMAN, an individual;
UNITED FINANCIAL GROUP, LTD,
a corporation; DAVID ZUCCOLOTTO;
and DOES 1 through 100,
inclusive,

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Defendants.
/

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This action was removed from state court on September 19,

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2011.

Plaintiffs move to remand back to state court for lack of

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federal subject matter jurisdiction. For the reasons that follow,

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plaintiffs’ remand motion will be granted.

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I.

BACKGROUND

4

A.

The Complaint

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The Complaint alleges that the individual plaintiffs are the

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owners

and

employees

of

plaintiff

Genesis

Specialty

Tile

&

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Accessories (“GSTA”). Defendants are life insurance salesmen. But

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instead of selling ordinary life insurance, defendants set out to

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deceive plaintiffs into thinking that they (defendants) would set

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up for plaintiffs a “Single Employer Welfare Benefit Plan” (“Plan”)

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that would qualify as such under Internal Revenue Code (“IRC”)

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419(e), 26 U.S.C. § 419(e), and would be governed by the Employee

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Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001,

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et seq.

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would purportedly be used to purchase life insurance policies, and

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those funds would be administered by a trust to be created by

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defendants.

The scheme was to obtain payments from plaintiffs that

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The complaint further alleges that defendants lured plaintiffs

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into the scheme by falsely assuring them, among other things, that

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their payments would be tax deductible under IRC § 419(e).

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Defendants kept plaintiffs in the scheme, and kept the premiums

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coming, by fraudulently concealing the true nature of the scheme

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plaintiffs had bought into.

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insurance salesmen who pretended to be selling ERISA-covered Plans

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in order to “facilitate the sale of life insurance policies which

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would generate exorbitant commissions.”

In fact, defendants were simply

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As relief, plaintiffs want the insurance contracts rescinded

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and they want their premiums refunded. They do not seek to enforce

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the scheme in any way, they do not seek to collect benefits under

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the scheme, they do not claim that defendants violated ERISA or the

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terms of the scheme in any way.

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contracts.

They just want out of their

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B.

Removal

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Defendants removed the action to federal district court,

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alleging that plaintiffs’ claims “are completely preempted by

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Section 502(a) of ERISA, 29 U.S.C. § 1132(a).1

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view, plaintiffs are participants in an ERISA plan administered by

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defendants, and are simply complaining about “the design, sale,

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funding, and administration” of the Plan, and about “excessive

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charges” imposed by the Plan.

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within the scope of the civil enforcement provisions of ERISA,

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Section 502(a), 11 U.S.C. § 1132(a). In that case, say defendants,

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the matter is preempted by Section 502(a), and federal jurisdiction

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lies.

In defendants’

Such issues, defendants argue, are

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Plaintiffs have moved for a remand back to state court, saying

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that their complaint is not preemption by Section 502(a). They

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agree that Section 502(a) preemption exists only when their lawsuit

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is within the scope of the civil enforcement provisions of ERISA.

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Defendants also say there is bankruptcy jurisdiction since
two of the plaintiffs and one of the defendants have filed for
bankruptcy. However, the bankruptcy cases are now concluded, and
do not provide a basis for removal under 28 U.S.C. § 1452(a). The
court grants plaintiffs’ Request for Judicial Notice of these
bankruptcy proceedings (Dkt. No. 57).
3

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However, they say that their lawsuit is not within its scope.

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C.

Multidistrict Litigation

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The action was briefly stayed while the Panel on Multidistrict

4

Litigation (MDL Panel) determined whether this case should become

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part of a multidistrict litigation, In re Indianapolis Life Ins.

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Co. IRS § 412(i) and § 419 Plans Life Ins. Marketing Litigation,

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MDL No. 1983 (J.P.M.L. November 10, 2011).

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Panel determined that the case should not be a part of the

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multidistrict litigation, and returned the matter to this court.

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See Dkt. No. 43.

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II.

Ultimately the MDL

Defendants bear the burden of establishing the existence of

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REMOVAL JURISDICTION STANDARD

removal jurisdiction:

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The “strong presumption against removal jurisdiction

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means

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establishing that removal is proper,” and that the court

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resolves all ambiguity in favor of remand to state

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court.

that

the

defendant

always

has

the

burden

of

19

Hunter v. Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009),

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quoting Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (per

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curiam).

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III. ANALYSIS

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Defendants premise removal, and federal jurisdiction, on the

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principle of preemption under Section 502(a) of ERISA, 28 U.S.C.

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////

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§ 1132(a) (“502(a) Preemption”).2

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provides:

The basic enforcement section

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A civil action may be brought ... by a participant or

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beneficiary ... to recover benefits due to him under the

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terms of his plan, to enforce his rights under the terms

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of the plan, or to clarify his rights to future benefits

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under the terms of the plan.

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29 U.S.C.A. § 1132(a)(1)(B). However, other enforcement provisions

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of ERISA’s Section 502(a) include actions for breach of fiduciary

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duties, and actions arising from violations of ERISA or the Plan.3

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Paulsen

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(summarizing some of the enforcement provisions), cert. denied, 558

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U.S. ___, 130 S. Ct. 1053 (2010).

14
15

v.

CNF

Inc.,

559

F.3d

1061,

1084

(9th

Cir.

2009)

Ordinarily, a state court action cannot be removed to federal
court on the basis of a federal preemption defense.4

However, in

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This preemption is also variously referred to in the cases
as “complete preemption” and “conflict preemption.” See Fossen v.
Blue Cross and Blue Shield of Montana, Inc., 660 F.3d 1102 (9th
Cir. 2011) (using both terms to refer to Section 502(a)
preemption), petition for cert. filed, 80 U.S.L.W. 3566 (U.S. Mar.
21, 2012) (No. 11-1155).
3

See 29 U.S.C. § 1132(a)(1)(A) (action against administrator
for failure to provide requested information); (a)(2) (action
against fiduciary for breach of duties created by ERISA); (a)(3),
(a)(4) & (a)(9) (actions arising out of violations of ERISA itself
or of a Plan under ERISA).
4

“Federal pre-emption is ordinarily a federal defense to the
plaintiff's suit. As a defense, it does not appear on the face of
a well-pleaded complaint, and, therefore, does not authorize
removal to federal court.” Metropolitan Life Ins. Co. v. Taylor,
481 U.S. 58, 63 (1987) (“It is long settled law that a cause of
action arises under federal law only when the plaintiff's
well-pleaded complaint raises issues of federal law”), citing
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ERISA’s case, “Congress has clearly manifested an intent to make

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causes

3

provisions of § 502(a) removable to federal court.”

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Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987) (finding Section

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502(a) to be comparable, for these purposes, to Section 301 of the

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Labor Management Relations Act of 1947).

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complaint “purports to raise only state law claims,” if it is

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within the scope of Section 502(a), it “is necessarily federal in

9

character” and is therefore removable to federal court by the

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of

defendants.

action

within

the

scope

of

the

civil

enforcement
Metropolitan

Thus, even if the

Id., 481 U.S. at 66-67.

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In the Ninth Circuit, a state-law cause of action is preempted

12

by Section 502(a), and therefore removable to federal court if (but

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only if):

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(1) “an individual, at some point in time, could have

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brought [the] claim under ERISA § 502(a)(1)(B),” and (2)

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“where there is no other independent legal duty that is

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implicated by a defendant's actions.”

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Marin General Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941,

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946 (9th Cir. 2009), quoting Aetna Health Inc. v. Davila, 542 U.S.

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200, 210 (2004).5

Both prongs of this test must be satisfied in

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Franchise Tax Board v. Construction Laborers, 463 U.S. 1 (1983) and
Gully v. First National Bank, 299 U.S. 109 (1936).
5

Although Marin specifies Section 502(a)(1)(B) as the
enforcement provision that must be involved, later Ninth Circuit
cases have clarified that Section 502(a) preemption will occur if
the purported state claim is within the scope of any of ERISA’s
enforcement provisions.
See Fossen, 660 F.3d at 1109 (“The
complete preemption doctrine applies to the other subparts of §
502(a) as well,” and finding preemption where an ERISA claim could
6

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order for Section 502(a) preemption to apply. Fossen v. Blue Cross

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and Blue Shield of Montana, Inc., 660 F.3d 1102, 1108 (9th

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Cir.

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conjunctive[,] [a] state-law cause of action is preempted by §

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502(a)(1)(B) only if both prongs of the test are satisfied’”),

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quoting Marin, 581 F.3d at 947.

2011)

(“Because

this

‘two-prong

test

...

is

in

the

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A.

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Defendants do not dispute that claims that are predicated upon

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Can Plaintiffs Sue Under 502(a)?

pre-plan fraud are not preempted by ERISA.

See Dkt. No. 36 at

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p.21.

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such claims, but upon the post-plan allegations.

The problem for

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defendants

in

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complaint are based upon pre-plan fraud.

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contain allegations of bad conduct that occurred after the plan was

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formed, but all the causes of action seek relief based upon the

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fraud that occurred before the plan was created, and that induced

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plaintiffs to contribute to the plan in the first place.6

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They argue that their Notice of Removal was not based upon

is

that

all

the

causes

of

action

plaintiffs’

The complaint does

First, the complaint alleges “fraudulent misrepresentation,”

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have been brought under Section 502(a)(3)); Paulsen, 559 F.3d at
1084-85 (finding no preemption after considering whether the state
claim was within the scope of any of ERISA’s enforcement
provisions).
6

Plaintiffs have arguably over-pled their case by including
allegations of post-plan conduct, or perhaps they are guilty of
wishing to tell the complete story (as they see it).
At oral
argument, defendants focused on Paragraph 26, saying that it
alleges wrong-doing by defendants post-plan.
That may be, but
those allegations do not form the basis of plaintiffs’ causes of
action. The court does not view Section 502(a) preemption as a
game of “gotcha,” where any mention of post-plan conduct gets an
entire lawsuit removed to federal court.
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in

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defendants set up a welfare benefit plan for them.

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alleges “negligent representation,” in that defendants lied to

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plaintiffs about what the plan would entail and its alleged tax

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benefits.

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defendants failed to tell plaintiffs that the plan lacked tax

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advantages, and that the tax authorities were scrutinizing “tax-

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avoidance” schemes like the one proposed.

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alleges “professional negligence” and “breach of fiduciary duty,”

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in that defendants, insurance salesmen, breached their (alleged)

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duties as insurance salesmen to plaintiffs in selling them the

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insurance policies.7

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had and received because of the fraudulent representations and

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concealment.8

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that

defendants

fraudulently

induced

plaintiffs

to

let

Second, it

Third, it alleges fraudulent concealment, in that

Fourth and Eighth, it

Ninth, it alleges “common counts” for money

The one claim that possibly alleges post-plan conduct is the

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Tenth.

It alleges breach of the covenant of good faith and fair

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dealing that arose after the insurance contracts “because of the

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insurance relationship.”

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however, it is not within the scope of the civil enforcement

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provisions of ERISA.

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under the plan, they do not ask for enforcement of the plan, they

Even if this is post-plan conduct,

Plaintiffs still do not seek any benefits

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The court expresses no view on whether life insurance
salesmen are fiduciaries under California law. That will be for
the state court to determine after remand. The point here, is that
the fiduciary duty allegedly arises out of California law, and not
out of any fiduciary duty arising under ERISA.
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“Claims” 5-7
constructive trust.

are

for
8

rescission,

restitution

and

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do not claim that defendants violated ERISA or the Plan, they do

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not claim that defendants did not furnish documents required by

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ERISA.

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They just want out of a scheme they say they were fraudulently

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induced to enter into.

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B.

There simply is nothing these plaintiffs want from ERISA.

The ERISA Civil Enforcement Provisions

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Even if plaintiffs’ claims were predicated upon post-plan

8

conduct however, the complaint is simply not within the enforcement

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provisions of ERISA, as set out below.

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1.

Section 502(a)(1)(B)

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Section Section 502(a)(1)(B) provides plan beneficiaries with

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a private right of action to recover benefits under the Plan, to

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enforce their rights under the terms of the plan, or to clarify

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their rights to future benefits under the terms of the plan.

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Plaintiffs’ claims are not within the scope of this provision.

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They do not seek benefits, or to enforce or clarify any provision

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of the Plan, they simply want out of it because they say they were

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fraudulently induced to enter into the contracts in the first

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place.

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2.

Section 502(a)(2)

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This provision creates a right to sue if a fiduciary under the

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Plan “breaches any of the responsibilities, obligations, or duties

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imposed

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1132(a)(2) (right of action for violation of 29 U.S.C. § 1109).

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Plaintiffs here do have a claim for breach of fiduciary duty.

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it is for breach of the alleged fiduciary duty owed by sellers of

upon

fiduciaries

by

this

9

subchapter.”

29

U.S.C.

§

But

1

life insurance, not the duty imposed on fiduciaries under ERISA.

2

3.

Section 502(a)(3), (a)(4) & (a)(9)

3

These provisions create a right to sue for conduct that

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constitutes a violation of ERISA, including failure to furnish

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statements to participants under of 29 U.S.C. § 1025(c), and other

6

violations. Plaintiffs do not allege any such violation of ERISA.

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And, the law violations they do allege are not covered by ERISA.

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They are simple fraud-in-the-inducement violations of common law.

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C.

Post Davila Ninth Circuit ERISA Cases

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Prior to the Supreme Court decision in Aetna Health Inc. v.

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Davila, 542 U.S. 200, 209 (2004), the Ninth Circuit rule had been

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that Section 502(a) preemption required that “ERISA expressly

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preempts the state law cause of action under 29 U.S.C. § 1144(a)

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[Section 514(a) preemption],” and in addition, the cause of action

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must

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provision of ERISA.”

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the test is no longer the law in the Ninth Circuit as a result of

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Davila.

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“no

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defendant's actions.”

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although

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(especially if they relied only on the requirement that the claim

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be “encompassed by the scope of civil enforcement provisions of

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ERISA”), the court summarizes only post-Davila Ninth Circuit ERISA

25

cases that appear to touch upon the issues facing the court.

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////

be

“encompassed

Id.

other

by

the

scope

of

the

Fossen, 660 F.3d at 1112.

civil

enforcement

The first part of

It has been replaced by a requirement that there be

independent

pre-Davila

legal

duty

that

is

implicated

Id., 660 F.3d at 1108.
cases

may

10

possibly

still

by

a

Accordingly,
be

relevant

1

1.

Fossen

2

In Fossen v. Blue Cross and Blue Shield of Montana, Inc., 660

3

F.3d 1102, 1108 (9th Cir. 2011), plaintiffs were employers who had

4

purchased health insurance for their workers. They sued Blue Cross

5

Blue Shield, which had raised their premium payments in a way that

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was prohibited by a Montana Law (its “Little HIPAA”).

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Circuit found that plaintiffs could have sued under ERISA Section

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502(a)(3)(A), which also prohibits the type of discriminatory

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premium pricing prohibited by Montana law.

The Ninth

Since the lawsuit was

10

within the civil enforcement provisions of Section 502(a), the

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Ninth Circuit found that 502(a) preemption existed, and the case

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was properly removed to federal court.

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Fossen does not help defendants because they have identified

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no enforcement provision of ERISA that would cover plaintiffs’

15

claims.

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this scheme, they say, and now they are suing to get out of it

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entirely, not to enforce it or get benefits out of it. Defendants’

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argument seems to be that once they have fraudulently induced

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plaintiffs into signing these contracts, plaintiffs are then stuck

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with the remedies provided by ERISA, even though ERISA apparently

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provides no remedy for the state claims they are asserting.9

Plaintiffs were fraudulently induced to participate in

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9

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25
26

“Express preemption” is yet another form of preemption
implicated in cases that purportedly involve ERISA. This is a form
of preemption created by Section 514(a) of ERISA, 11 U.S.C. §
1144(a), and is distinct from Section 502(a) preemption (“complete”
or “conflict” preemption). Section 514(a) provides:
Except as provided in subsection (b) of this section,
the provisions of this subchapter and subchapter III of
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1

2.

Marin

2

In Marin General Hosp. v. Modesto & Empire Traction Co., 581

3

F.3d 941, 949 (9th Cir. 2009), plaintiff hospital called the

4

patient’s ERISA insurer and reached an oral contract that the

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hospital would be reimbursed for 90% of the costs of the patient’s

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care.

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hospital $46,655.14 – apparently the amount called for by the

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patient’s ERISA plan – and said it would pay no more. The hospital

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sued in state court for the remainder, and the insurer removed to

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When the insurer got the bill for $178,926.54, it paid the

federal court, asserting Section 502(a) preemption.
The Ninth Circuit found that there was no Section 502(a)

12

preemption.

The hospital was not suing for benefits under ERISA,

13

or for any violation of ERISA.

It was suing under a separate oral

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21
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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.
29 U.S.C. § 1144(a). Where it applies, Section 514(a) preemption
defeats the state claims asserted. Fossen, 660 F.3d at 1107 (“All
of these preemption provisions [Sections 502(a), 514(a), and a
HIPAA preemption provision] defeat state-law causes of action on
the merits”). Unlike Section 502(a) preemption, however, Section
514(a) preemption does not also confer federal subject matter
jurisdiction, even where it applies.
Marin, 581 F.3d at 945
(“preemption under § 514(a) of ERISA, is an insufficient basis for
original federal question jurisdiction under § 1331(a) and removal
jurisdiction under § 1441(a)”); Fossen, 660 F.3d at 1107 (“Conflict
preemption under ERISA § 502(a), however, also confers federal
subject matter jurisdiction for claims that nominally arise under
state law”).
Once this court has determined that there is no federal
subject matter jurisdiction in a removed action, the correct course
is to remand so that defendants “may assert in state court” Section
514(a) preemption arguments, “as well as any other defenses they
might have.” Marin, 581 F.3d at 951.
12

1

contract – expressly outside of the ERISA plan – for reimbursement

2

of 90% of the hospital costs.

3

payment under ERISA, and did not claim any violation of ERISA,

4

breach of any ERISA duty, or anything else regarding ERISA.

5

just wanted their money under the contract they made by telephone

6

with the insurer.

The hospital claimed no right to

They

As the court concluded:

7

the Hospital's state-law claims based on its alleged

8

oral contract with MBAMD were not brought, and could not

9

have been brought, under § 502(a)(1)(B). Therefore, the

10

Hospital's state-law claims do not satisfy the first

11

prong of Davila.

12
13

Marin, 581 F.3d at 949.
The plaintiffs in this case similarly do not base their claim

14

on any obligation arising out the ERISA plan or the ERISA law.

15

Rather, they say they would never have had anything to do with

16

defendants’ scheme, but for the fraudulent inducement.

17

not trying to collect benefits, clarify their rights under the

18

insurance

19

defendants violated a provision of ERISA, or anything else having

20

to do with ERISA.

21

fraudulently induced to participate in.

22

identified a provision of ERISA that covers such a claim.

23

contracts

3.

or

the

scheme

generally,

They are

establish

that

They just want out of the contracts they were
Defendants have not

Cleghorn

24

In Cleghorn v. Blue Shield of California, 408 F.3d 1222, 1226

25

(9th Cir. 2005), “the factual basis of the complaint ... was the

26

denial of reimbursement of plan benefits” under the ERISA plan.
13

1

None of plaintiffs’ “artful pleading” could get around that simple

2

fact, so the matter was subject to Section 502(a) preemption, and

3

thus properly removed to federal court. This case clearly does not

4

apply to these plaintiffs, as they do not claim denial of benefits

5

under the plan, nor do they seek benefits under the plan.

6

4.

Paulsen

7

In Paulsen v. CNF Inc., 559 F.3d 1061 (9th Cir. 2009), an

8

accounting firm negligently valued a spun-off company, which went

9

bankrupt.

The employees then received reduced benefits on the

10

under-funded ERISA plan from the government guarantee agency, the

11

Pension Benefit Guaranty Corporation.

12

accountants for negligence.

13

claim was not preempted by Section 502(a), because:

The employees sued the

The Ninth Circuit held that their

14

The Employees are suing Towers Perrin for tort damages

15

payable to the class of aggrieved plaintiffs based on a

16

duty owed them by Towers Perrin under state law, not for

17

damages for breach of fiduciary duty payable to the plan

18

(and thus PBGC).

19

Paulsen, 559 F.3d at 1085.

This case is applicable to this

20

Complaint, since it is another case in which plaintiffs do not sue

21

under the ERISA enforcement provisions, but under separate, state

22

causes of action.10

23

////

24
25
26

10

Nor is there “artful pleading,” since in both cases, the
claims asserted really do not arise under the ERISA enforcement
provisions. There is no federal character to either lawsuit.
14

1

B.

Bankruptcy Jurisdiction

2

There were bankruptcies on both sides of this case that were

3

still pending as of the date of the parties’ last briefs. However,

4

both bankruptcy cases have issued discharges and are now closed (or

5

about to close), so this basis for removal jurisdiction, 28 U.S.C.

6

§ 1452(a), does not exist, if it ever did.

7

Eleftherios Efstratis, Bankr. No. 10-50339, Dkt. No. 152 (Bankr.

8

E.D. Cal. March 30, 2012) (discharge); In re Raymond Francis Olmo,

9

Jr., Bankr. No. 9-39868, Dkt. No. 165 & 166 (Bankr. E.D. Cal.

See

10

February 2 & 28, 2012) (discharge and case closing).

11

IV.

See In re

CONCLUSION
Plaintiffs’ claims are state law claims that are not within

12
13

the scope of the enforcement provisions of Section 502(a) of ERISA.

14

The bankruptcy cases involving two plaintiffs and a defendant are

15

now

16

jurisdiction.

17

1.

closed.

There

is

no

other

basis

asserted

for

federal

Accordingly, the court orders as follows:

Plaintiffs’ motion to remand this case to state court

18

(Dkt. No. 14), is GRANTED, for lack of federal subject matter

19

jurisdiction;

20

2.

In

light

of

the

absence

of

federal

subject

matter

21

jurisdiction, the court will not address defendants’ motions to

22

dismiss (Dkt. Nos. 8, 17, 18 and 19).

23

IT IS SO ORDERED.

24

DATED: April 9, 2012.

25
26
15