Roberts v. Scarcello et al
MEMORANDUM AND ORDER granting 5 Motion to Remand. Signed by District Judge John W. Lungstrum on 1/17/2017. (hl)
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF KANSAS
Case No. 16-2720-JWL
Michael Scarcello; Freebird
Communications, Inc.; and
Freebird Communications, Inc.
MEMORANDUM & ORDER
In May 2015, plaintiff filed a state court petition against defendants seeking, among other
things, an injunction precluding defendants from taking any action that would harm the favored
tax treatment of an employee stock ownership plan and a declaratory judgment that plaintiff is
entitled to redemption of his stock. In September 2016, plaintiff amended his petition to add
additional state law claims. Thereafter, defendant Freebird Communications, Inc. Profit-Sharing
Plan removed the case to this court on the grounds that plaintiff’s claims for injunctive and
declaratory relief are preempted by ERISA § 502(a).
Despite the fact that defendant is seeking removal based on claims that appeared in the
original petition filed more than 18 months ago, plaintiff does not dispute that the removal
petition is timely because the original petition was never served on the removing defendant. See
Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 347-48 (1999) (a defendant’s
statutory period to remove does not begin to run, and a defendant is not required to remove, until
the defendant has been served).1 Asserting that removal was improper because his claims are
not preempted by ERISA, plaintiff has moved to remand this case to state court. As will be
explained, the motion is granted.
As described by plaintiff Matthew Roberts, this case is about a “business divorce”
between two individuals—Mr. Roberts and defendant Michael Scarcello.
In his amended
petition, plaintiff Matthew Roberts alleges that he and Mr. Scarcello, in 2001, decided to go into
business for themselves to provide equipment and expertise with respect to audio-video satellite
uplink for television broadcasting. Thus, Mssrs. Roberts and Scarcello formed the corporate
entity Freebird Communications, Inc. as well as Freebird Communications, Inc. Profit-Sharing
Trust (the “Trust” or “Plan”), which was funded by the “rolled over” retirement accounts of
Mssrs. Roberts and Scarcello to avoid the taxes and penalties associated with liquidating their
retirement funds for the start-up of the business. Mssrs. Roberts and Scarcello are both Trustees
of the Trust. The Trust holds 94% of the shares of Freebird Communications, Inc. and Mssrs.
Roberts and Scarcello each held three percent of the shares individually.
Over the years, the working relationship between Mr. Roberts and Mr. Scarcello began to
deteriorate. In 2013, Mr. Roberts began efforts to buy Mr. Scarcello’s interest in the business
and dissolve the partnership. Negotiations ultimately broke down after the parties obtained
vastly different valuations of the business from their respective business valuation experts.
The Plan has not yet been served with the amended petition either, but plaintiff does not
contend that service is a prerequisite to removal.
Thereafter, Mr. Roberts resigned as President of Freebird Communications, Inc. but continues to
own stock in his own name as well as shares held by the Trust for his benefit. Since Mr.
Roberts’ resignation, Mr. Scarcello has sought to remove Mr. Roberts as a Trustee of the Trust.
The jurisdiction of the federal courts is limited by Article III of the Constitution and by
statutes passed by Congress. Hansen v. Harper Excavating, Inc., 641 F.3d 1216, 1220 (10th
Cir. 2011). A case that is filed in state court may be removed to federal court by the defendant,
but only if it is one “of which the district courts of the United States have original jurisdiction.”
Id. (quoting 28 U.S.C. § 1441(a)). Under the well-pleaded complaint rule, in order to invoke
federal question jurisdiction under 28 U.S.C. § 1331 and thus to be removable on that basis, a
federal question must appear on the face of the plaintiff’s complain. Id. (citing Felix v. Lucent
Techs., Inc., 387 F.3d 1146, 1154 (10th Cir. 2004)).
The Supreme Court, however, has
recognized an exception to the well-pleaded complaint rule for a narrow category of state-law
claims that can independently support federal jurisdiction and removal. Id. (citing Felix, 387
F.3d at 1154). These claims are “completely preempted” because they fall within the scope of
federal statutes intended by Congress completely to displace all state law on the given issue and
comprehensively to regulate the area. Id. at 1221. As the Tenth Circuit has explained,
[u]nlike ordinary preemption, which is a federal defense to a state-law claim under
the Supremacy Clause of the Constitution that does not render a state-law claim
removable to federal court, complete preemption makes a state-law claim “purely
a creature of federal law,” and thus removable from state to federal court from the
Id. (citations omitted).2
The Supreme Court “has recognized only a few federal statutes that so pervasively
regulate their respective areas that they have complete preemptive force; ERISA is one.” Id.
(citing Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 67 (1987)). Section 502(a) of ERISA
authorizes civil actions “(1) by a participant or beneficiary . . . (B) to recover benefits due to him
under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his
rights to future benefits under the terms of the plan.” Id. (quoting ERISA § 502(a)(1)(B)).
Under Taylor, a state-law suit that falls within the scope of this section may be removed to
federal court via complete preemption. Id. In Aetna Health Inc. v. Davila, the Supreme Court
held that a claim falls within the scope of ERISA § 502(a)
[W]here the individual is entitled to such [claimed] coverage only because of the
terms of an ERISA-regulated employee benefit plan, and where no legal duty
(state or federal) independent of ERISA or the plan terms is violated, then the suit
falls “within the scope of” ERISA § 502(a)(1)(B). In other words, if an individual,
at some point in time, could have brought his claim under ERISA § 502(a)(1)(B),
and where there is no other independent legal duty that is implicated by a
defendant’s actions, then the individual’s cause of action is completely preempted
by ERISA § 502(a)(1)(B).
542 U.S. 200, 210 (2004) (citation omitted). Therefore, if a state-law claim is for benefits due or
claimed under an ERISA-regulated plan, or to enforce or clarify rights under a plan, and no legal
duty independent of ERISA is implicated in the claim, then the state-law suit falls within §
502(a) and may be removed to federal court. Id.
In addition to the complete preemption created by § 502(a), ERISA contains a separate
provision, § 514(a), that substantively preempts state laws. See Hansen, 641 F.3d at 1221. This
provision, however, creates only ordinary—rather than complete—preemption. Id. In other
words, that provision creates a federal defense of preemption but it does not of its own force
create federal jurisdiction. Id.
The court, then, must determine whether plaintiff’s claims for injunctive and declaratory
relief fall within the scope of ERISA § 502(a).3 Plaintiff’s claim for injunctive relief seeks to
preclude defendants from taking any action that would jeopardize the favorable tax treatment of
the Plan under the Internal Revenue Code. Defendants fail to explain how plaintiff could have
brought this claim under § 502(a) when the claim does not seek a determination of benefits and
which seeks to enjoin not a violation of the terms of the Plan but a violation of the tax code.
Indeed, the Tenth Circuit has held that a Plan’s failure to meet the requirements for favorable tax
treatment under the Internal Revenue Code—or an action that causes a Plan to lose its favorable
tax status—is not a violation of ERISA and does not give rise to a private right of action under
ERISA. See Stamper v. Total Petroleum, Inc. Retirement Plan, 188 F.3d 1233, 1237-39 (10th
Cir. 1999) (citing Reklau v. Merchants Nat. Corp., 808 F.2d 628, 631 (7th Cir. 1986) (holding
that Title 26 U.S.C. § 401 of the Internal Revenue Code did not create any substantive rights that
could be enforced by an individual as a participant or beneficiary of a tax qualified pension
Plaintiff’s claim for declaratory relief seeks, among other things, a determination that he
is entitled to redemption of his stock consistent with the terms of the Plan and the terms of a
“partnership and joint venture agreement” executed by the parties.
Defendants urge that
plaintiff clearly could have brought this claim under § 502(a)(3) which provides that a
participant, beneficiary or fiduciary may file a civil action to “enforce any . . . terms of the
Defendants do not assert that ERISA preemption applies to plaintiff’s remaining claims, but
contend only that the court should exercise supplemental jurisdiction over those claims.
plan.”4 But the first prong of Davila is satisfied if the claim asserts rights to which the plaintiff
is entitled “only because of the terms of an ERISA-regulated employee benefit plan.” Salzer v.
SSM Health Care of Oklahoma Inc., 762 F.3d 1130 (10th Cir. 2014) (quoting Davila, 542 U.S. at
210 (emphases added).
The amended petition clearly alleges that plaintiff is entitled to
redemption of his stock pursuant to the parties’ partnership and joint venture agreement in
addition to the Plan itself. Moreover, because plaintiff seeks to enforce contracts in addition to
the Plan, the claim also fails the second prong of the Davila preemption test, which requires that
no “independent legal duty” other than ERISA be implicated. Id. (quoting Davila, 542 U.S. at
210). Defendants, then, have not shown on this record that plaintiff’s claims are subject to
complete ERISA preemption.
Dutcher v. Matheson, 733 F.3d 980, 985 (10th Cir. 2013)
(removing party bears burden of establishing jurisdiction).
Defendant further asserts that removal is appropriate because defendants have asserted
counterclaims under ERISA § 502(a); defendants have expressly asserted ERISA preemption
under § 514 as an affirmative defense in their answer to the amended petition; and the resolution
of the claims in this case will have an economic impact on the Plan. None of these asserted
bases establish federal jurisdiction for purposes of removal. See Vaden v. Discover Bank, 556
U.S. 49, 60-62 & n.17 (2009) (while complete preemption doctrine permits a plaintiff’s cause of
action to be recast as a federal claim for relief, counterclaims that rely exclusively on federal
While Davila discussed complete preemption by reference to § 502(a)(1)(B), the doctrine
clearly applies to the other subparts of § 502(a) as well. See Fossen v. Blue Cross & Blue Shield
of Montana, Inc., 660 F.3d 1102, 1107 (9th Cir. 2011) (collecting cases); Metropolitan Life
Insurance Co. v. Taylor, 481 U.S. 58, 66 (1987) (“Congress has clearly manifested an intent to
make causes of action within the scope of the civil enforcement provisions of § 502(a)
removable to federal court.”).
substantive law do not qualify a case for federal court cognizance); Felix, 387 F.3d at 1156
(ERISA preemption under § 514 is not sufficient for removal jurisdiction; state court free to
consider dismissal under § 514’s conflict preemption provision); Davila, 542 U.S. at 210 (state
law claims may be removed pursuant to ERISA only if claim is for benefits due or claimed
under an ERISA-regulated plan, or to enforce or clarify rights under a plan, and no legal duty
independent of ERISA is implicated in the claim).
IT IS THEREFORE ORDERED BY THE COURT THAT plaintiff’s motion to
remand (doc. 5) is granted.
IT IS FURTHER ORDERED THAT this case is remanded to the District Court of
Johnson County, Kansas.
Dated this 17th day of January, 2017, at Kansas City, Kansas.
s/ John W. Lungstrum
John W. Lungstrum
United States District Judge
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