Behjou v. Bank of America Group Benefits Program et al

Filing 65

ORDER by Judge ARMSTRONG denying 53 Motion for Partial Summary Judgment; granting 58 Motion for Summary Judgment (lrc, COURT STAFF) (Filed on 5/1/2012)

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UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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OAKLAND DIVISION

5 OMID BEHJOU,

Plaintiff,

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vs.

8 BANK OF AMERICA GROUP BENEFITS

PROGRAM, BANK OF AMERICA HOME

Case No: C 10-03982 SBA
ORDER GRANTING PLAINTIFF’S
MOTION FOR PARTIAL
SUMMARY JUDGMENT AND
DENYING DEFENDANTS’
MOTION FOR PARTIAL
SUMMARY JUDGMENT

9 LOAN CORPORATION, BANK OF

AMERICA CORPORATE BENEFITS

Dkt. 53, 58

10 COMMITTEE,

Defendants,

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AETNA LIFE INSURANCE COMPANY,
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Real Party in Interest,
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Plaintiff Omid Behjou brings the instant action against Defendants Bank of America

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N.A. (“Bank of America”), Bank of America Group Benefits Program (“the Plan”) and

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Bank of America Corporate Benefits Committee (collectively “the Bank Defendants”), as

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well as real party in interest, Aetna Life Insurance Company, based on their alleged failure

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to pay disability benefits to him during the course of his employment with Bank of America

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N.A. The parties are presently before the Court on Plaintiff and the Bank Defendants’

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cross-motions for partial summary judgment concerning the issue of whether short term

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disability benefit payments constitute a “payroll practice” exempt from the Employee

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Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1002, et seq. Having read and

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considered the papers filed in connection with this matter and being fully informed, the

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Court hereby GRANTS Plaintiff’s motion and DENIES the Bank Defendants’ motion. The

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Court resolves the instant motions without oral argument. See Fed. R. Civ. P. 78(b); Civ.

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L.R. 7-1(b).

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I.

BACKGROUND
The parties are familiar with the facts of this case which are summarized herein only

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to the extent they are germane to the instant motion. Plaintiff is currently employed by

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Bank of America as a mortgage officer. During the course of his employment, Plaintiff

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took a number of medical leaves due to disability. He applied for and received short term

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disability benefits through the Plan, though he was deemed ineligible after several months.

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He also was denied long-term disability benefits because he had not received short term

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disability benefits for the requisite amount of time.

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On September 3, 2010, Behjou filed a Complaint for ERISA Benefits and Related

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Unpaid Salary against Defendants in this Court. Dkt. 1. The Complaint alleges five claims

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for relief: (1) recovery of benefits under ERISA; (2) breach of fiduciary duty; (3) violation

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of California Insurance Code § 10111.21; (4) failure to pay salary due under California

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Labor Code § 210; and (5) intentional infliction of emotional distress (“IIED”). Plaintiff

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claims that he was underpaid short term disability benefits, and that he was improperly

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denied long-term disability benefits.

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Now before the Court are competing motions which address the issue of whether the

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short term disability component of the Plan constitutes a “payroll practice” within the

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meaning of ERISA. If it is not a payroll practice, the parties agree that Plaintiff’s fourth

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and fifth claims for violation of California Labor Code § 210 and IIED, respectively, are

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preempted by ERISA. As such, Plaintiff contends that the payment of short term disability

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benefits constitutes a payroll practice, while the Bank Defendants asserts that it does not.

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The matter has now been fully briefed and is ripe for adjudication.2

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The third claim was dismissed pursuant to the Court’s Order of September 20,
2011. Dkt. 45.

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The parties should be aware that under this Court’s Standing Order, they are
limited to filing one motion for summary judgment. See Judge Armstrong’s Standing
Orders at 4, eff. 7/1/11. The parties may not file any additional summary judgment motions
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II.

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LEGAL STANDARD
Federal Rule of Civil Procedure 56 provides that a party may move for summary

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judgment on some or all of the claims or defenses presented in an action. Fed. R. Civ. P.

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56(a)(1). “The court shall grant summary judgment if the movant shows that there is no

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genuine dispute as to any material fact and the movant is entitled to judgment as a matter of

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law.” Id.; see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The movant

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bears the initial burden of demonstrating the basis for the motion and identifying the

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portions of the pleadings, depositions, answers to interrogatories, affidavits, and admissions

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on file that establish the absence of a triable issue of material fact. Celotex Corp. v. Catrett,

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477 U.S. 317, 323 (1986). If the moving party meets this initial burden, the burden then

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shifts to the non-moving party to present specific facts showing that there is a genuine issue

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for trial. See Celotex, 477 U.S. at 324; Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,

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475 U.S. 574, 586-87 (1986).

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“On a motion for summary judgment, facts must be viewed in the light most

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favorable to the nonmoving party only if there is a genuine dispute as to those facts.” Ricci

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v. DeStefano, 129 S.Ct. 2658, 2677 (2009) (internal quotations omitted) (quoting in part

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Scott v. Harris, 550 U.S. 372, 380 (2007)). “Only disputes over facts that might affect the

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outcome of the suit under the governing law will properly preclude the entry of summary

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judgment. Factual disputes that are irrelevant or unnecessary will not be counted.”

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Anderson, 477 U.S. at 248. A factual dispute is genuine if it “properly can be resolved in

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favor of either party.” Id. at 250. Accordingly, a genuine issue for trial exists if the non-

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movant presents evidence from which a reasonable jury, viewing the evidence in the light

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most favorable to that party, could resolve the material issue in his or her favor. Id.

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III.

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DISCUSSION
ERISA regulates “employee welfare benefit plans,” which include plans that provide

employees “benefits in the event of sickness.” 29 U.S.C. § 1002(1). “[A]ny and all State
laws” that relate to an ERISA-governed employee benefit plan are preempted to the extent
they have a “connection with” or make “reference to such a plan.” Golden Gate Restaurant
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Ass’n v. City and Cnty. of San Francisco, 546 F.3d 639, 648 (9th Cir. 2008) (quoting in

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part 29 U.S.C. § 1144(a)). ERISA displaces all state laws “within its sphere, even

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including state laws that are consistent with ERISA’s substantive requirements.”

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Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739 (1985).

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“A regulation of the Secretary of Labor, however, excludes certain ‘payroll

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practices’ from the application of ERISA.” See Alaska Airlines, Inc. v. Oregon Bureau of

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Labor, 122 F.3d 812, 812 (9th Cir. 1997). This regulation provides that an “employee

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welfare benefit plan” shall not include: “Payment of an employee’s normal compensation,

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out of the employer’s general assets, on account of periods of time during which the

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employee is physically or mentally unable to perform his or her duties, or is otherwise

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absent for medical reasons ....” 29 C.F.R. § 2510.3-1(b)(2) (emphasis added). Here,

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Plaintiff contends that the payment of short term disability benefits falls within this

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regulation. To determine whether the regulation is applicable, the Court focuses on “the

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actual methods of payment.” Alaska Airlines, 122 F.3d at 814 (holding that employer’s

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payment of benefits from general assets qualified as a payroll practice under the plain

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language of the regulation, even if the employer subsequently seeks reimbursement from

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trust assets held in a separate fund).

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The parties first dispute whether the payment of short term disability benefits

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qualifies as “normal compensation.” 29 C.F.R. § 2510.3-1(b)(2). In Bassiri v. Xerox

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Corp., 463 F.3d 927 (9th Cir. 2006), the Ninth Circuit, deferring to the Department of

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Labor’s interpretation of said term, held that, “‘Normal’ in this context can be read to refer

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to the amount of compensation, the source of the payment, the manner of payment, or any

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combination of the above.” Id. at 931. In the case of the long-term disability plan at issue

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in that case, the court found that the payment of disability benefits “more closely resembles

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salary,” given that “[t]he payments come in regular paychecks, in an amount tied to the

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employee’s salary and not to the variable performance of a fund” and cease upon the

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employee’s termination. Id. at 932.

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Like the benefits paid in Bassiri, the short term disability benefits paid by Bank of

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America contain the requisite indicia of “normal compensation.” The Plan documents state

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that “STD [short term disability] replaces income” based upon the employee’s base pay, or

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a specific formula if the employee is paid on a commission basis. White Decl. Ex. A at 25,

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Dkt. 55-2. Disability payments are made “through the regular payroll process” with

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deductions taken for tax withholding, insurance coverage, 401(k) contributions, and are

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considered taxable income. Id. at 24. Benefits terminate after twenty-six weeks or, inter

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alia, “when employment ends.” Id. at 26. Defendants do not dispute any of the foregoing,

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but simply assert that the disability payments “are not ‘wages’ under the California Labor

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Code.” Defs.’ Opp’n at 3. Not only is this assertion unsupported, it cannot be reconciled

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with Bassiri’s conclusion that the payment need only “closely resemble[]” wages or salary

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to constitute “normal compensation” within the meaning 29 C.F.R. § 2510.3-1(b)(2). Thus,

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applying the test set forth in Bassiri, the Court finds that the short term disability benefits

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paid to Plaintiff constitute normal compensation, as that term is used in the regulation.

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The remaining issue is whether Plaintiff’s short term disability benefits were paid

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out of Bank of America’s general assets. See 29 C.F.R. § 2510.3-1(b)(2). The answer to

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this question is set forth in the Plan documents, which specifically state that short term

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disability benefits are paid from the company’s “general assets.” White Decl. Ex. A, Dkt.

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53-1 at 88. Notably, Defendants make no showing to the contrary. Rather, they contend

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that short term disability benefits are a component of “the integrated overall Plan, which is

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indisputably subject to ERISA.” Defs.’ Opp’n at 1. This argument misses the point.

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Under the Ninth Circuit’s decision in Alaska Airlines, which is cited by neither side, the

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critical inquiry is not whether the payment of short term disability benefit is made under the

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auspices of a benefit plan; rather, the salient inquiry here is the source from which the

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benefits are actually paid. 122 F.3d at 814 (focusing on fact that payments were made from

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defendant’s general assets); see also Bassiri, 463 F.3d at 931 (noting that the focus under 29

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C.F.R. § 2510.3-1(b)(2) is “on the source of the funding”). In this case, the uncontroverted

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evidence shows that the payment of short term disability benefits is made from Bank of

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America’s general assets.

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IV.

CONCLUSION

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The Court concludes that Defendants’ payment of short term disability benefits

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constitutes a “payroll practice” within the meaning of 29 C.F.R. § 2510.3-1(b)(2), and

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therefore, Plaintiff’s fourth and fifth causes of action are not preempted by ERISA.

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Accordingly,

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IT IS HEREBY ORDERED THAT:

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1.

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The Bank Defendants’ motion for partial summary judgment is DENIED, and

Plaintiff’s motion for partial summary judgment is GRANTED.
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The parties shall appear for a telephonic Case Management Conference on

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May 10, 2012 at 2:45 p.m. Prior to the date scheduled for the conference, the parties shall

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meet and confer and prepare a joint Case Management Conference Statement which

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complies with the Standing Order for All Judges of the Northern District of California and

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the Standing Orders of this Court. The parties shall propose a Rule 16 schedule that will

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result in the resolution of this case by December 2012. Plaintiff shall assume responsibility

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for filing the joint statement no less than two (2) days prior to the conference date.

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Plaintiff’s counsel is to set up the conference call with all the parties on the line and call

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chambers at [phone]. NO PARTY SHALL CONTACT CHAMBERS DIRECTLY

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WITHOUT PRIOR AUTHORIZATION OF THE COURT.

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3.

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IT IS SO ORDERED.

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This Order terminates Docket 53 and 58.

Dated: May 1, 2012

_______________________________
SAUNDRA BROWN ARMSTRONG
United States District Judge

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