Mostajo et al v. Nationwide Mutual Insurance Company

Filing 48

ORDER signed by District Judge John A. Mendez on 11/13/18 GRANTING 29 Motion for Partial Summary Judgment and DENYING 39 Cross-Motion for Partial Summary Judgment. (Coll, A)

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1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 EASTERN DISTRICT OF CALIFORNIA 8 9 10 11 ANTHONY MARC MOSTAJO, and ELAINE QUEDENS, on behalf of himself and all others similarly situated, Plaintiffs, 12 13 14 15 16 17 v. NATIONWIDE MUTUAL INSURANCE COMPANY, and Does 1 through 50, inclusive, No. 2:17-cv-00350-JAM-AC ORDER GRANTING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING DEFENDANT’S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT Defendants. Anthony Marc Mostajo and Elaine Quedens (“Plaintiffs”) bring 18 class claims against Nationwide Mutual Insurance Company 19 (“Defendant” or “Nationwide”), their former employer, for 20 Nationwide’s alleged failure to pay overtime and unused but 21 accrued vacation time to claims adjusters in California. 22 Am. Compl., ECF No. 23. 23 Second The parties filed cross-motions for summary judgment on a 24 single issue: whether Nationwide’s “Your Time Program,” through 25 which Nationwide provides a paid a time-off benefit to its 26 employees, is regulated by ERISA. 27 Nationwide Opp’n and Cross-Mot., ECF No. 39. 28 the Your Time Program is an ERISA-exempt “payroll practice”; 1 Mostajo Mot., ECF No. 29-1; Plaintiffs argue 1 Nationwide asserts the contrary. 2 3 Id. For the reasons set forth below, the Court GRANTS Plaintiffs’ motion and DENIES Defendant’s cross-motion.1 4 I. 5 PROCEDURAL BACKGROUND Defendant Nationwide is based in Columbus, Ohio and provides 6 insurance and financial services throughout the United States. 7 Plaintiffs Anthony Marc Mostajo (“Mostajo”) and Elaine Quedens 8 (“Quedens”) worked for Nationwide as claims adjusters in 9 California from 1998 to December 2015 and January 2016, 10 respectively. 11 ECF No. 29-7, at 1. 12 Mostajo Decl., ECF No. 29-6, at 1; Quedens Decl., On January 9, 2017, Mostajo filed a Complaint against 13 Nationwide in the Superior Court of the State of California, 14 County of Sacramento (Case No. 34-2017-00206005-CU-OE-GDS), 15 alleging, among other individual claims, class claims for 16 Nationwide’s failure to pay overtime in violation of the 17 California Labor Code and California Business and Professions 18 Code. 19 claims adjusters employed by Nationwide in California since 20 January 2013. 21 Quedens, amended the complaint to include a class claim for 22 23 24 25 26 27 28 Compl., EFC No. 1-9. Compl. ¶ 11. The putative class consists of all A month later, Mostajo, joined by This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled for October 2, 2018. Additionally, both Plaintiffs (ECF No. 45-1) and Nationwide (ECF Nos. 39-7, 46-1) submitted objections to evidence in support of the cross-motions. The Court has reviewed these evidentiary objections, but declines to individually rule on them as it is unnecessary to the determination of this motion. See Judge William Shubb's excellent discussion of evidentiary objections in Burch v. Regents of the University of California, 433 F.Supp.2d 1110, 1118–1122 (E.D. Cal. 2006). 2 1 1 failure to pay, upon termination, accrued but unused vacation 2 time. 3 removed the case to federal court. 4 Am. Compl., ECF No. 1-11. Shortly thereafter, Nationwide Notice of Removal, ECF No. 1. On February 15, 2018, Plaintiffs filed their Second Amended 5 Class Action Complaint against Nationwide which includes, in 6 relevant part, an allegation that that Nationwide “had in place a 7 policy whereby it failed to pay for all accrued vacation time, 8 precluding claims adjusters from carrying over all accrued 9 vacation time from year to year” and “failed to pay all accrued 10 vacation time at termination.” 11 this policy, Plaintiffs allege that Nationwide violated 12 California Labor Code Section 227.3, which requires employers to 13 pay employees for all accrued vacation time. 14 Second Am. Compl. ¶ 7. Based on Id. ¶¶ 41-50. Nationwide filed an answer with affirmative defenses on 15 March 29, 2018. 16 affirmative defense argues that the Plaintiffs’ California law- 17 based causes of action related to the vacation time benefits are 18 completely preempted by ERISA. 19 Ans., ECF No. 26. Nationwide’s twenty-first Ans. at 16. After a period of discovery, Plaintiffs filed a motion for 20 summary judgment arguing that the Your Time Program is exempt 21 from ERISA as a “payroll practice” and so Nationwide’s twenty- 22 first affirmative defense fails as a matter of law. 23 Mot. 24 judgment as to ERISA’s applicability. 25 Cross-Mot. 26 See Mostajo Nationwide opposed and brought a cross-motion for summary II. See Nationwide Opp’n and FACTS 27 The Nationwide Insurance Companies and Affiliates Plan for 28 Your Time and Disability Income Benefits (“the Plan”), provides 3 1 three benefits programs: (1) the Your Time Program; (2) the 2 Short-Term Disability Income Benefit Program; and (3) the Long- 3 Term Disability Income Benefit Program. 4 Statement of Facts, ECF No. 45-4, ¶ 1. 5 effective for California employees on October 24, 2005. 6 Nationwide Responding Statement of Facts, ECF No. 39-5, ¶ 3; Plan 7 Governing Document, ECF No. 44, Ex. B. 8 provides a paid time-off benefit, including for vacation and sick 9 days. Mostajo Responding Statement of Facts ¶ 3; Mostajo Decl. 10 at 1. The Plan Administrator is the Nationwide Benefits 11 Administrative Committee, which is composed exclusively of 12 Nationwide officers. 13 ¶ 14. 14 Mostajo Responding The Plan first became The Your Time Program Nationwide Responding Statement of Facts An Amended and Restated Directed Trust Agreement (“Trust 15 Agreement”) was entered into between the Plan and Nationwide 16 Trust Company, FSB in May 2014 and made effective as of January 17 1, 2014. 18 Agreement, ECF No. 44, Ex. E. 19 Trust Company (“Trustee”) as trustee of the Nationwide Insurance 20 Companies & Affiliates Employee Health Care Trust (“Trust”) and 21 establishes the Trust as a voluntary employee beneficiary 22 association account to be held and administered for the uses and 23 purposes set forth in the Trust Agreement. 24 Statement of Facts ¶¶ 7-8; Trust Agreement § 12.04. 25 Agreement provides that the Trust “shall constitute the sole 26 source of funds which may be used to pay benefits under the Plan, 27 and the Participating Employers shall not be liable in any way or 28 in any manner for any such benefits beyond those monies which Nationwide Responding Statement of Facts ¶ 7; Trust The Agreement appoints Nationwide 4 Nationwide Responding The Trust 1 have been contributed to this trust.” 2 Statement of Facts ¶ 10; Trust Agreement § 9.13. 3 Mostajo Responding The Trustee has no power or responsibility to determine 4 employees’ entitlement to Your Time benefits. Nationwide 5 Responding Statement of Facts ¶ 10; Trust Agreement § 5.3. 6 Trustee makes payments from the Trust to the claims administrator 7 “from time to time at the Plan Administrator’s direction” and 8 only “in such amounts and for such purposes as may be specified 9 in the Plan Administrator’s direction.” The Nationwide Responding 10 Statement of Facts ¶ 11; Trust Agreement § 3.4. 11 power to require Nationwide to make any contributions to the 12 Trust to fund Your Time benefits nor does the Trustee bear 13 liability for inadequacy of any contributions Nationwide may make 14 to the Trust or for their failure to fund the Trust fully. 15 Nationwide Responding Statement of Facts ¶¶ 12-13; Trust 16 Agreement § 3.4. 17 The Trust has no For each payroll period, Nationwide determines its 18 contributions to the Trust to fund Your Time benefits. 19 Nationwide Responding Statement of Facts ¶ 16. 20 contributions to the Trust are not determined by an actuary. 21 ¶ 15. 22 (“HRIS”) automatically calculates the total accrued Your Time 23 hours for each eligible employee based on the Plan’s accrual 24 schedule. 25 calculates the dollar value of the total accrued hours for the 26 payroll period based on employees’ current salary rates. 27 Next, the benefits accounting group initiates an Automated 28 Clearing House transfer of the dollar value of these total Nationwide’s Id. Instead, Nationwide’s Human Resources Information System Id. ¶ 16. Nationwide’s benefits accounting group then 5 Id. 1 accrued hours, without regard to the actual paid time off used 2 during the payroll period, from Nationwide’s main funding account 3 to the Trust. 4 Nationwide’s main funding account holds the general assets of the 5 company. 6 Mostajo Responding Statement of Facts ¶ 13. Nationwide Responding Statement of Facts ¶ 17. At each two week payroll period, at the same time HRIS 7 determines the total accrued Your Time hours, HRIS also 8 determines the amount of Your Time hours that employees 9 reportedly used during that period. Nationwide Responding 10 Statement of Facts ¶ 22. 11 group again calculates the dollar value of the Your Time hours 12 used for the payroll period based on employees’ current salary 13 rates. 14 Automated Clearing House transfer of this total amount of funds 15 needed to pay the benefits for the payroll period from the Trust 16 back to Nationwide’s main funding account. 17 Statement of Facts ¶ 23; Mostajo Responding Statement of Facts 18 ¶ 17. 19 funds move directly from the main funding account through a 20 payroll cash account and to the employees. 21 Statement of Facts ¶ 24; Mostajo Responding Statement of Facts 22 ¶¶ 17-18. 23 payroll period which includes both normal pay and any payment of 24 the Your Time benefit, but the two are reflected as separate line 25 items on the paystub. 26 ¶ 20. 27 /// 28 /// Id. The Nationwide benefits accounting The benefits accounting group then initiates another Nationwide Responding Finally, that same day, the transferred Your Time benefit Nationwide Responding The employees receive a single paycheck for each Mostajo Responding Statement of Facts 6 1 III. OPINION 2 A. Legal Standard 3 “The court shall grant summary judgment if the movant shows 4 that there is no genuine dispute as to any material fact and the 5 movant is entitled to judgment as a matter of law.” 6 Civ. P. 56(a). 7 evidence demonstrating the absence of any genuine dispute of 8 material fact. 9 24 (1986). Fed. R. Initially, the moving party must provide See Celotex Corp. v. Catrett, 477 U.S. 317, 323- The burden then shifts to the opposing party to 10 establish a genuine dispute. See Matsushita Elec. Indus. Co. v. 11 Zenith Radio Corp., 475 U.S. 574, 586 (1986). 12 summary judgment, the party cannot rely on allegations in its 13 pleadings but instead must tender evidence in the form of 14 affidavits and/or other admissible evidence. 15 P. 56(c); Matsushita, 475 U.S. at 586 n.11 (1986). 16 party must also demonstrate that a disputed fact is material, 17 that it makes a difference in the outcome of the case. 18 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). 19 the party must show that the dispute is genuine, that a 20 reasonable trier of fact could return a verdict in its favor. 21 See Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1436 (9th 22 Cir. 1987). Neither Plaintiffs or Nationwide contend that there 23 is a genuine dispute as to any material fact which prevents this 24 Court from granting summary judgment on the issue that is the 25 subject of the instant motion/cross motion. In opposing See Fed. R. Civ. The opposing See And 26 B. 27 First, Nationwide asserts that a consent decree entered in a 28 Preclusion case in the United States District Court for the Southern 7 1 District of Ohio conclusively determines that the Plan and Your 2 Time Program are governed by ERISA. 3 Mot. at 8-9, 33; McGoldrick v. Angela Bradstreet, No. 2:08-cv- 4 0001-JLG-MRA (S.D. Ohio Sept. 26, 2008). 5 that because the California Labor Commissioner was a party to the 6 consent decree the Plaintiffs here are also bound, and the 7 determination there goes “beyond res judicata” and requires this 8 Court to find that ERISA governs. 9 Nationwide Opp’n and Cross- Nationwide contends Id. at 33. The consent decree in McGoldrick has no such preclusive 10 effect. Res judicata (claim preclusion) applies when there is 11 (1) an identity of claims, (2) a final judgment on the merits, 12 and (3) privity between the parties. 13 Lash Grp., Inc., 586 F.3d 1204, 1212 (9th Cir. 2009), as amended 14 on denial of reh’g and reh’g en banc (Jan. 6, 2010). 15 Plaintiffs here were not party to the McGoldrick case. 16 Collateral estoppel (issue preclusion) applies when “(1) the 17 issue at stake was identical in both proceedings; (2) the issue 18 was actually litigated and decided in the prior proceedings; 19 (3) there was a full and fair opportunity to litigate the issue; 20 and (4) the issue was necessary to decide the merits.” 21 v. Holder, 672 F.3d 800, 806-07 (9th Cir. 2012), as amended (May 22 3, 2012). 23 preclusion is asserted) did not have a “full and fair 24 opportunity” to litigate this issue in the McGoldrick case. 25 Additionally, because this is a consent order, the issue of 26 whether the “payroll practices” exemption applies (and even 27 whether ERISA preemption applies) was never “actually litigated.” 28 Arizona v. California, 530 U.S. 392, 414 (2000) (consent Cell Therapeutics, Inc. v. The Oyeniran Again, the Plaintiffs here (against whom issue 8 1 judgments “ordinarily occasion no issue preclusion. . .”). 2 Thus, neither issue preclusion nor claim preclusion apply. 3 Second, Nationwide argues that a decision in the United 4 States District Court for the District of New Hampshire, as well 5 as certain determinations by state-level administrative entities, 6 that the Plan is governed by ERISA should persuade this Court to 7 find the same. 8 While the Court may consider these decisions for persuasive 9 value, the Court is not bound by decisions of sister District Nationwide Opp’n and Cross-Mot. at 9-10, 33-35. 10 Courts, nor state administrative agencies. This Court 11 necessarily adjudicates disputes pursuant to the applicable legal 12 framework and specific facts of the case. 13 C. ERISA Payroll Practices Exemption 14 ERISA regulates “employee welfare benefit plans,” which 15 include “any plan, fund, or program ... maintained for the 16 purpose of providing ... vacation benefits ...” 17 § 1002(1). 18 program’ or ‘vacation benefits,’ and does not specify whether 19 every policy to provide vacation benefits falls within its 20 ambit.” 21 However, Department of Labor regulation 29 C.F.R. § 2510.3-(1)(b) 22 excludes from the reach of ERISA certain “payroll practices” 23 including the “[p]ayment of compensation, out of the employer’s 24 general assets, on account of periods of time during which the 25 employee . . . is on vacation . . .” 29 C.F.R. § 2510.3–1(b)(3); 26 Morash, 490 U.S. 107 (finding employer’s policy of paying 27 employees for unused vacation time an ERISA-exempt “payroll 28 practice” where benefits were paid from the employer’s general 29 U.S.C. “[ERISA] does not further define ‘plan, fund, or Massachusetts v. Morash, 490 U.S. 107, 109 (1989). 9 1 2 assets). The payroll practices exemption applies here if the Your 3 Time Program vacation benefits are paid from Nationwide’s 4 “general assets.” 5 6 1. Benefits Reviewed Individually As a preliminary issue, Nationwide argues the Court should 7 examine the Plan as a whole (the Your Time Program together with 8 the short-term and long-term disability benefits) in determining 9 whether ERISA applies. Nationwide Opp’n and Cross-Mot. 1-2. On 10 the contrary, Ninth Circuit case law suggests that the inquiry of 11 whether the payroll practices exemption applies is focused on the 12 particular benefit at issue. 13 v. Oregon Bureau of Labor, 122 F.3d 812 (9th Cir. 1997) 14 (analyzing whether payroll practice exemption applies to 15 employer’s system for payment of sick leave); Bassiri v. Xerox 16 Corp., 463 F.3d 927 (9th Cir. 2006) (analyzing whether payroll 17 practice exemption applies to employer’s plan for payment of 18 long-term disability benefits); see also Clay v. AT & T Commc’ns 19 of California, Inc., No. 2:12-CV-2027-JAM-KJN, 2012 WL 5868767, 20 at *5 (E.D. Cal. Nov. 19, 2012), report and recommendation 21 adopted, No. 2:12-CV-2027-JAM-KJN, 2012 WL 6560729 (E.D. Cal. 22 Dec. 14, 2012) (holding that while the defendant’s “Umbrella Plan 23 and the Disability Program f[e]ll squarely within ERISA” the 24 “appropriate focus of the [payroll practice exemption] analysis 25 is the particular benefit at issue.”). 26 its inquiry on the vacation benefits of the Your Time Program. 27 28 2. See, e.g., Alaska Airlines, Inc., The Court thus focuses Payment of Benefits from General Assets In Massachusetts v. Morash, 490 U.S. 107 (1989), the Supreme 10 1 Court held that an employer’s practice of paying employees’ 2 vacation benefits from the employer’s “general assets” was an 3 exempted payroll practice under 29 C.F.R. § 2510.3-(1)(b)(3) and 4 therefore did not implicate ERISA. 5 observed, however, that “the creation of a separate fund to pay 6 employees vacations benefits” would be subject to ERISA. 7 490 U.S. at 114. 8 9 The Morash court also Morash, The Ninth Circuit clarified that an employer must do more than simply create a separate trust for the benefits payments to 10 be regulated by ERISA; that separate trust must actually be 11 liable for and pay the benefits. 12 Oregon Bureau of Labor, 122 F.3d 812 (9th Cir. 1997). 13 Airlines, the airline established a trust for the payment of 14 benefits but made the benefits payments directly to the employees 15 from its general assets and then sought reimbursement from the 16 trust. 17 (called “advance and recapture”) to be a payroll practice under 18 the “plain words” of 29 C.F.R. § 2510.3-(1)(b) because the 19 payment was made from the airline’s general assets. 20 Id. at 813. Alaska Airlines, Inc., v. In Alaska The Ninth Circuit found this practice Id. at 814. It is undisputed that Nationwide pays the Your Time Program 21 vacation benefits from its main funding account via a payroll 22 cash account. 23 Mostajo Responding Statement of Facts ¶¶ 17-18. 24 the plain words of 29 C.F.R. § 2510.3-(1)(b), the Your Time 25 Program is an ERISA-exempt payroll practice because the vacation 26 benefits are ultimately paid from Nationwide’s general assets, 27 rather than a separate trust. 28 814 (instructing that courts “must focus on the actual methods of Nationwide Responding Statement of Facts ¶ 24; Therefore, under See Alaska Airlines, 122 F.3d at 11 1 payment”). 2 However, in Alaska Airlines the Ninth Circuit also suggested 3 that courts must look at the substance of the payment procedure 4 in determining whether a literal application of the regulation is 5 proper in each case. 6 Alaska Airlines does not defeat the purposes of ERISA, because 7 Alaska’s system has more of the characteristics of an unfunded 8 payment than of an ERISA trust fund payment.”). Id. (“Applying the regulation literally to 9 In this case, the substance of Nationwide’s vacation 10 benefits payment procedure bears more similarity to an unfunded 11 benefit program with the true source of payments being 12 Nationwide’s general assets. 13 benefits payment method is not an “advance and recapture” 14 practice per se, Nationwide’s main funding account remains the 15 true proximate source of funding. 16 Nationwide funds the trust account from its general assets and 17 that same day a portion of those funds return to Nationwide’s 18 general assets, from which Nationwide pays the vacation benefits. 19 The Trust has no other source of funding beyond Nationwide, the 20 Nationwide Benefits Administrative Committee determines the 21 payments to be made to the Trust and by the Trust, and the Trust 22 has no independent recourse against Nationwide for failure to 23 pay. 24 entirely on Nationwide’s, not the trust’s, financial health 25 because Nationwide is essentially funding the account on a 26 fortnightly basis in relation to its anticipated payments. Even though Nationwide’s vacation On a fortnightly basis, Thus, the vacation benefits payments here rely almost 27 Under Ninth Circuit precedent, the plain language of 29 28 C.F.R. § 2510.3-(1)(b) controls this inquiry, and the Court finds 12 1 the payroll practice exemption applies to the vacation benefits 2 payments from the Your Time Program because the undisputed facts 3 demonstrate Nationwide pays the benefit from its general assets. 4 5 3. Department of Labor Four-Factor Guidance Since the Court has found the Your Time Program exempt from 6 ERISA as a payroll practice, it need not reach the parties’ 7 arguments regarding whether the Your Time Program is also exempt 8 under the Department of Labor’s four-factor guidance. 9 Advisory Opn. No. 2004-08A (July 2, 2004) 2004 WL 2074325 See DOL 10 (Denny’s Opinion), at *3 (“Vacation pay programs that fail to 11 satisfy all of the conditions of [exemption under 29 C.F.R. 12 § 2510.3–1], however, are not necessarily covered by Title I of 13 ERISA.”); see also Bassiri v. Xerox Corp., 463 F.3d 927, 933 (9th 14 Cir. 2006); Gilbert v. Securitas Sec. Servs. USA, Inc., No. 15 CV 06-1981 CAS MANX, 2007 WL 7648314, at *5 (C.D. Cal. Feb. 26, 16 2007). 17 D. ERISA Preemption 18 ERISA broadly preempts state laws relating to employee 19 benefit plans. 29 U.S.C. § 1144(a). Plaintiffs bring their 20 claims for Nationwide’s alleged failure to pay, upon termination, 21 unused vacation time accrued through the Your Time Program as 22 violations of California law. 23 these state law claims. 24 vacation benefits payments for the Your Time Program constitute a 25 “payroll practice” within the meaning of 29 C.F.R. § 2510.3–1, 26 rather than an employee welfare benefit plan covered by ERISA. 27 Thus, ERISA does not preempt Plaintiffs’ state law claims as to 28 the vacation benefits. Nationwide alleges ERISA preempts However, as discussed above, the 13 1 2 IV. ORDER For the reasons set forth above, the Court GRANTS 3 Plaintiffs’ motion for partial summary judgment (ECF No. 29) and 4 DENIES Defendant’s cross-motion for partial summary judgment (ECF 5 No. 39). 6 7 IT IS SO ORDERED. Dated: November 13, 2018 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14

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