Bailey v. Minnesota Life Insurance Company

Filing 31

MEMORANDUM OPINION & ORDER: (1) Defendant's 27 Motion to Amend the Notice of Removal is DENIED. (2) Plaintiff's 24 Motion to Remand is GRANTED. This matter is REMANDED to Montgomery Circuit Court. (3) All remaining motions are DENIED AS MOOT. (4) This matter is STRICKEN from the active docket. Signed by Judge Jennifer B Coffman on March 24, 2009. (AWD) cc: COR, certified copy to Montgomery Circuit Court

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF KENTUCKY CENTRAL DIVISION LEX INGTON

CIV IL ACTION NO. 07-196-JBC RHONDA BAILEY, V. M EM ORANDUM OPINION AND ORDER DEFENDANT. PLAINTIFF,

M INNESOTA LIFE INSURANCE COMPANY, ***********

This matter is before the court on the plaintiff' s motion to remand, R. 24, and the defendant' s motion for leave to amend its notice of removal. R. 27. The court , having review ed the record and being otherw ise advised, w ill deny the def endant ' s motion, grant the plaintiff' s motion, and remand this matter to the M ont gom ery Circuit Court. I. Background Rhonda Bailey, the w idow of Franklin Lee Bailey, filed suit in Montgomery Circuit Court against Minnesota Life Insurance Company (" M innesot a Life" ) after sev eral failed internal appeals from a denial of benefits. R. 1-1. The policy at issue w as an accidental death and dismemberment (" A D& D" ) policy offered by M innesot a Life as a component plan through the benefits program, NesCare, of Mr. Bailey ' s employer, Nestle USA, Inc. (" Nest le" ). R. 13-1, 1. The defendant rem ov ed the case to this court, claiming that it presents a federal question under t he Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. 1

(" ERISA " ). R. 1-4, 1-5. At issue is the defendant' s denial of benefits, including a $ 5 0 0 , 0 0 0 . 0 0 death benefit, under the AD&D policy, on the grounds that Bailey' s deat h w as caused by " driv ing a vehicle w hile intoxicated" and, therefore, " w as f oreseeable. " R. 1-1. On January 9, 2008, the court granted a motion for limited discovery by the plaint if f . R. 15. After completing that discovery, she moved to remand the action. The defendant raised the issue of diversity jurisdiction for the first time during the brief ing of the plaintiff' s motion to remand and, five days after the plaintiff' s motion becam e fully briefed, filed the motion for leave to amend its notice of removal that is also at issue here. II. M ot ion to Amend Notice of Removal A. Legal Standards

The defendant states that its motion is under Fed. R. Civ. P. 15. R. 27, at 2. Rule 15(a) provides that " [ a] party may amend the party' s pleading once as a m at t er of course at any time before a pleading is served or, if the pleading is one to w hich no responsive pleading is permitted . . ., the party may so amend it . . . w it hin 20 days after it is served." Otherw ise, according to the Rule, a pleading m ay be amended " only by leave of court or by w rit t en consent of the adverse part y ; and leave shall be freely given w hen justice so requires." A defendant must remove a civil action to federal court w it hin thirty days of it s being filed or the defendant' s being served w it h the initial pleading, w hichev er is short er. 28 U.S.C. § 1446(b). Otherw ise, a defendant may remove an action 2

w it hin thirty days after receipt by the defendant, through service or ot herw ise, of a copy of an amended pleading, motion, order or other paper from w hic h it may first be ascertained that the case is one w hic h is or has become removable, except that a case may not be rem ov ed on the basis of jurisdiction conferred by section 1332 of this t it le more than 1 year after commencement of the action. Id . B. Analysis

Under either of the standards enunciated above ­ Rule 15 or the removal st at ut e ­ the court must deny the defendant' s motion to amend its notice of rem ov al. The motion to amend came w ell after the onset of this action. Removal occurred on June 21, 2007, but the defendant filed the instant motion over a year lat er, on June 30, 2008, after the plaintiff had filed several pleadings, all of w hic h required responses. Thus, assuming for the purpose of this motion that Rule 15 applies, the standard in that Rule by w hic h the court must measure the instant m ot ion is w het her " just ic e so requires." Justice does not require such an amendment, how ev er. The defendant rem ov ed this action on June 21, 2007, based solely upon its allegation that the case presents a federal question. In the year betw een the defendant' s filing of its not ice of removal and its present motion to amend that notice, the plaintiff reasonably assumed that federal question w as the only basis of jurisdiction being assert ed by the defendant. Accordingly, she moved for limited discovery to assist w it h determining w het her ERISA' s safe-harbor provisions apply (a motion opposed by the defendant); took limited discovery after it w as granted by the court; and

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f iled a lengthy motion to remand. Allow ing the defendant to amend its notice of rem ov al to assert diversity jurisdiction at this late date w ould create an unjust result . Thus, Rule 15 cannot be a basis to allow such an amendment. III. M ot ion to Remand A. Legal Standard

The plaintiff bases her motion to remand on an assertion that the court lacks subject -m at t er jurisdiction because the action does not present a federal question. A federal question exists w hen an action arises " under the Constitution, law s, or t reat ies of the United States." 28 U.S.C. § 1331. " If at any time before final judgm ent it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c). As the removing party, the defendant bears the burden of proving the existence of federal jurisdiction. Eastman v. Marine M echanical Corp., 438 F.3d 544, 550 (6th Cir. 2006); Long v. Bando Mfg. of Am. Inc. , 201 F.3d 754, 757 (6th Cir. 2000). Removal statutes are construed narrow ly , and doubts about the propriety of removal are resolved in favor of rem and. Long, 201 F.3d at 757. B. Analysis

The plaintiff argues that the AD&D policy at issue here is not governed by ERISA . A court should conduct a three-step factual inquiry to determine w het her a plan is governed by ERISA: First , the court must apply the so-called ` saf e harbor' regulations est ablished by the Department of Labor to determine w het her the program w as exempt from ERISA. Second, the court must look to see 4

if there w as a ` plan' by inquiring w het her from the surrounding circum st anc es a reasonable person could ascertain the intended benef it s, the class of beneficiaries, the source of financing, and proc edures for receiving benefits. Finally, the court must ask w het her t he employer " est ablished and maintained" the plan w it h the intent of prov iding benefits to its employees. Thom pson v. American Home Assur. Co., 95 F.3d 429, 434-35 (6th Cir. 1996) (int ernal citations and quotations marks omitted). 1. " Saf e Harbor" Provisions

Under the ERISA " saf e harbor" regulations laid out by Department of Labor regulat ions, an employee insurance policy is excluded from ERISA coverage if the f ollow ing four prongs are satisfied: (1 ) the employer makes no contribution to the policy; (2) employee part icipat ion in the policy is completely voluntary; (3) the employer' s sole functions are, w it hout endorsing the policy, to permit the insurer t o publicize the policy to employees, collect premiums through payroll deduc t ions and remit them to the insurer; and (4) the employer receiv es no consideration in connection w it h the policy other than reasonable compensation for administrative services actually rendered in connection w it h payroll deduction. Thom pson, 95 F.3d at 435 (6th Cir. 1996) (citing 29 C.F.R. § 2510.3-1(j)). The def endant concedes that the plaintiff can satisfy the first, second and fourth prongs but argues that the plaintiff cannot satisfy the " endorsem ent " prong. " [ T] he relevant framew ork for determining if endorsement exists is to ex amine the employer' s involvement in the creation or administration of the policy f rom the employees' point of view . " 95 F.3d at 436-37. " [ A ] finding of endorsem ent is appropriate if, upon examining all the relevant circumstances, there is some factual show ing on the record of substantial employer involvement in the 5

creat ion or administration of the plan." 95 F.3d at 436. The factors Thom pson points to " f or courts to use in determining w het her an employer behaved neut rally tow ards a plan" are: (1 ) Has the employer played an active role in either determining w hic h em ploy ees w ill be eligible for coverage or in negotiating the terms of t he policy or the benefits thereunder? (2 ) Is the employer named as the plan administrator? (3 ) Has the employer provided a plan description that specifically refers t o ERISA or that the plan is governed by ERISA? (4 ) Has the employer provided any materials to its employees suggest ing that it has endorsed the plan? (5 ) Does the employer participate in processing claims? Boot h v. Life Ins. Co. of North America, 2006 U.S. Dist. LEXIS 82856, at * 6 -7 (W . D. Ky. 2006) (citing Thompson, 95 F.3d at 437). A finding of the applicability of one or more of these factors " m ay " support a finding that the policy w as endorsed. Id. at * 7 . issue: The question of endorsement vel non is a mixed question of fact and law . In some cases the evidence w ill point unerringly in one direction so that a rational factfinder can reach but one conclusion. In those cases, endorsement is a question of law . . . . In other cases, the legal signif ic ance of the facts is less certain, and the outcome w ill depend on inferences that the factfinder chooses to draw . . . . In those cases, endorsement becomes a question of fact. Id. at 437 (citing Johnson v. Watts Regulator Co., 63 F.3d 1129 (1st Cir. 1995) Moreover, endorsement can be either a factual or a legal

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(cit at ions omitted)) (quotation marks omitted). a. Role of Nestle in determining terms and eligibility for coverage

A s to the first Booth factor, the plaintiff argues that Nestle played a " m inim al" role in determining the terms of the policy and eligibility for coverage, only providing information and possibly having input into the inclusion of an addit ional accidental death benefit for employees w ho died w earing seatbelts. While the information provided to employees to explain the component plan, w hic h included the AD&D policy at issue here, did provide a detailed account of w hic h em ploy ees w ere eligible to participate, see AR 565-67, it also noted several im port ant restrictions imposed by the defendant. These restrictions w ere laid out in t he " Ov erv iew of NesCARE" given to Nestle employees and included the follow ing: Part icipat ion in a Component Plan may be limited or restricted. As a result , not all Coverage Options of NesCARE are available to all Part icipant s. In addition, the effective date of insurances or coverages under a Component Plan may be delayed or depend on evidence of insurabilit y . You should review the summary of the Component Plan in w hic h you have an interest to determine if you or your Dependents are eligible, w hen your insurance or coverage becomes effective, and w het her you must provide evidence of insurability. A R 565. Nestle employees also could " elec t the level of coverage [they] desire f rom the various options listed in the enrollment materials. Some options may be subject to evidence of insurability." AR 700. Given these limitations and rest ric t ions, the defendant has not carried its burden as the removing party to show t hat reasonable employees w ould conclude that Nestle determined w hic h

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em ploy ees w ere eligible for coverage or that Nestle negotiated the terms of the polic y instead of the defendant. The defendant cites Johnson v. Connecticut General Life Ins. Co., 2007 WL 2 5 0 9 8 6 6 (N.D. Ohio Aug. 30, 2007), in w hic h the court found " t hat the employer play ed an active role in determining w ho w as eligible for coverage." Id. at * 3 . In J ohnson, how ev er, the employer " allow ed new ly hired individuals to seek benefits w it hout providing evidence of good health," and, in addition to the classifications used by Nestle, annual compensation, something determined by the employer (along w it h w het her overtime, bonus, and additional pay w ould count tow ard annual compensation), " gov erned w hat benefits w ere available." Id. In contrast to t he Johnson factors, a reasonable employee in the instant case w ould conclude t hat the defendant, as the insurer, w as determining eligibility by determining w het her limitations and restrictions, such as requirements for evidence of insurabilit y , w ere met. Det ails about the logistics of the relationship betw een Nestle and the def endant , see, e.g., R. 28, at 7-8, w hich illuminate the " int ent " of the employer, m ay not be raised to shift the focus aw ay from the conclusions draw n from the perspect iv e of a reasonable employee. See Thompson, 95 F.3d at 436. Moreover, w hile Nestle may have played a role in negotiating certain additional provisions for t he AD&D policy, such as the additional seatbelt benefit or additional discounts, see R. 28, at 9-10, these negotiations w ould not have been apparent to the reasonable

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em ploy ee, w ho w ould have no reason to conclude that the defendant' s limitations and restrictions w ere negotiated by Nestle. In Vazquez v. Paul Revere Life Ins. Co., 2 8 9 F. Supp. 2d 727, 731-32 (E.D. Va. 2001), endorsement w as found w here an em ploy er' s 30% discount " [ belied] a subsidy and constructive contributions to Plaint if f ' s premium payments" and the employer " w as required to approve an em ploy ee' s plan before such employee could benefit from the 30% discount." Id. Here, if the defendant cannot specify in its brief the exact amount of " subsidy " its negot iat ions provided to employees, see R. 28, at 10-11, it is not reasonable to ex pect an employee to be able to do so. Nor did Nestle employees have to receive approv al from Nestle for any subsidy, rendering Vazquez inapposite to the present case. b. W het her Nestle w as listed as the plan administrator

A s to the second Booth factor, the plaintiff argues that " [ e] v en though Nestle is named as the plan administrator of the umbrella NesCARE Plan, Minnesota Life is t he claim administrator of the AD&D plan." R. 24-2, at 10-11. " [ W ] here the employer is named as the plan administrator, a finding of endorsem ent may be appropriate." Thompson, 95 F.3d at 436 (emphasis added). " [ A ] n employer can be a plan administrator in name only and still satisfy the four requirem ent s of the safe harbor regulation." Stuart v. UNUM Life Ins. Co. of A merica, 217 F.3d 1145, 1152-53 (9th Cir. 2000) (also noting that " t he evidence present ed by the insured still allow ed a reasonable person to conclude that the

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em ploy er satisfied the third requirement of the safe harbor regulation" ) (citing Zav ora v. Paul Revere Life Ins. Co., 145 F.3d 1118, 1121 (9th Cir. 1998)). Being listed as plan administrator goes to the employer' s role in administering t he plan, see Thompson, 95 F.3d at 436, but the issue still must be analyzed " f rom t he employee' s point of view , " Id. at 437. Here the listing of Nestle as plan adm inist rat or does not w eigh in favor of endorsement because Minnesota Life w as t he claims administrator for the AD&D coverage, suggesting that, from the point of v iew of a reasonable employee, Nestle w as the plan administrator " in name only." Stuart, 217 F.3d at 1153. c. M ent ion of ERISA in the plan description

A s to the third Booth factor, the plaintiff argues that even though the NesCA RE summary plan description does mention ERISA, it does so only near the end of the booklet and not in the section discussing AD&D coverage. The plaintiff also notes that, in the section discussing AD&D coverage, the NesCARE summary plan description states that the AD&D coverage is governed by its ow n insurance docum ent , w hic h does not mention ERISA. How ev er, the NesCARE summary plan descript ion does state that NesCARE is a " f lex ible benefit plan through w hic h v arious Component Plans provide w elf are benefits as defined under [ERISA]," AR 7 3 2 , and outlines claimants' " right s and protections under [ERISA]." AR 733. W hile the AD&D policy at issue here is in fact a NesCARE component plan, t he court finds that this factor does not w eigh heavily in favor of a finding of 10

endorsem ent because a few mentions of ERISA, including one buried in the back of a booklet, w ould do little to counter-balance the statement that the AD&D policy is gov erned by its ow n insurance document (w hic h does not mention ERISA), from t he perspective of a reasonable employee. d. W het her the employer provided materials suggesting it had endorsed t he plan

A s to the fourth Booth factor, the plaintiff argues that claim forms, the insurance policy, and denial letters bear Minnesota Life' s logo and heading and t here is only a small Nestle logo on the last page of the open enrollment guide. As not ed by the defendant, the enrollment w ork sheet sent to the plaintiff confirmed t he AD&D policy w as part of NesCARE and provided a telephone number for Nest le' s Human Resources service center, a number that also appears on the plan sum m ary . AR 147. The court finds that this factor also does not w eigh heavily in favor of endorsem ent , because a few mentions w it hin many pages of materials do not out w eigh the overall paucity of mentions. From the perspective of a reasonable em ploy ee, such a small number of mentions do not necessarily suggest that Nestle endorsed the AD&D policy at all because a reasonable employee could conclude t hat Nestle w as being helpful but impartial in providing the resources to its em ploy ees. This imbalance is magnified in light of the statement that the AD&D polic y is governed by the defendant' s insurance document, w hic h mentions the

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def endant prominently w hile " NesCA RE" appears only once on the defendant' s ent ire insurance document. Moreover, this single appearance of " NesCA RE" has no cont ex t at all and a reasonable employee could at least as easily conclude that it w as printed on the document for purposes of some type of administrative sorting f unct ion as he or she could conclude that it indicated endorsement of the AD&D policy by Nestle. e. W het her the employer participated in processing claims

A s to the fifth, and final, Booth factor, the plaintiff argues that Nestle plays no role in processing claims beyond forw arding information to the defendant to aid in the processing of claims. The defendant points out that the plaintiff filed her init ial claim w it h Nestle and that Nestle completed the claim and forw arded addit ional materials to the defendant. Deposition testimony by Gail Varhoe, Nest le' s corporate representative, how ev er, stated that filing a claim entailed " cont act [ ing] our Nestle Employee Service Center and report[ing] the death, and t hen the process w as to send out a condolence letter and the applicable benefit st at em ent that needed to be completed to file a claim w it h the carrier." R. 25, at 1 8 (emphasis added). While Nestle may have " part ic ipat ed" in the processing of claim s, this factor also does not w eigh heavily in favor of endorsement because a reasonable employee w ould have been aw are at all times that Nestle w as perf orm ing minor administrative tasks on behalf of the defendant. f. Nest le did not endorse the AD&D policy

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Taking all of the Booth factors together, the court finds that Nestle did not endorse the AD&D policy at issue in this case. Nestle made it clear to reasonable em ploy ees that coverage decisions w ere up to the defendant; Nestle' s materials clearly stated that the AD&D policy w as governed by the defendant' s ow n insurance document, w hich did not mention ERISA; the defendant, as the claims adm inist rat or, w as the de facto plan administrator and Nestle w as the plan adm inist rat or " in name only" ; mentions of ERISA in the plan description w ere in passing; and Nestle' s participation in the processing of claims w as minimal. Consequently, the court finds that, w hen view ing all of the factors from the perspect iv e of a reasonable employee, Nestle did not endorse the AD&D policy. Indications that the policy w as endorsed by Nestle w ere few and w ere far out w eighed by indicators that the policy w as a Minnesota Life policy for w hic h Nest le w as merely passing information back and forth. Most importantly, there is a separat e insurance document that does not mention ERISA, on w hich the w ord " NesCA RE" appears only once, and that bears no indication of being anything other t han a stand-alone plan. See Oliver v. Sun Life Assurance Co. of Canada, 417 F. Supp. 2d 865, 867 (W.D. Ky. 2005) (" [ W ] hen an employer separates itself from t he plan, making it reasonably clear that the plan is a third-party offering, rather t han haw k ing the plan to its employees as ` our plan,' and an integral part of its of f ering, the employer cannot be seen as endorsing the plan." (citing Johnson, 63 F. 3 d 1129)). See also Thompson, 95 F.3d at 436 (" [ A ] s long as the employer m erely advises employees of the availability of group insurance, accepts payroll 13

deduct ions, passes them on to the insurer, and performs other ministerial tasks that assist the insurer in publicizing the program, it w ill not be deemed to have endorsed t he program . . . . It is only w hen an employer proposes to do more, and takes subst ant ial steps in that direction, that it offends the ideal of employer neutrality and brings ERISA into the picture." (citing Johnson, 63 F.3d at 1133). 2. W het her the AD&D Component Coverage Is an ERISA " Plan"

The plaintiffs argue that the AD&D policy is not an ERISA " plan. " " In determining w het her a plan, fund or program [exists], a court must det erm ine w het her from the surrounding circumstances a reasonable person could ascert ain the intended benefits, beneficiaries, source of financing, and procedures f or receiving benefits." Int' l Resources, Inc. v. New York Life Ins. Co. 950 F.2d 2 9 4 , 297 (6th Cir. 1991) (citation omitted). International Resources presents the classic ERISA " plan" scenario, because " Int ernat ional Resources did not merely adv ert ise alternate plans and then refrain from making any contributions on behalf of its employees. Instead, International Resources chose the plan, paid the prem iums, and gave this coverage to all of its employees as an employee benefit. Id. at 298 (citation omitted). Here, the plaintiff chose the plan and paid the prem iums, but the policy w as not given to all employees. Therefore, a reasonable em ploy ee w ould not conclude that the AD&D policy at issue in this case w as an ERISA " plan. " He or she w ould be more likely to conclude that Nestle w as merely " adv ert ising" the policy.

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3.

W het her Nestle " Est ablished or Maintained" AD&D Coverage

Finally , the plaintiff argues that Nestle did not " est ablish or maintain" the A D& D policy. As Thompson explains, the test is " w het her the employer est ablished or maintained the plan w it h the intent of providing benefits to its em ploy ees. " 95 F.3d at 435. This analysis " should [focus] on the employer . . . and [its] involvement w it h the administration of the plan." Hansen v. Continental Ins. Co., 940 F.2d 971, 978 (5th Cir. 1991). In McDonald v. Provident Indemnity Lif e Ins. Co., 60 F.3d 234 (5th Cir. 1995), the Fifth Circuit found that an employer " ` est ablished or maintained' the plan for the purpose of providing benefits to its em ploy ees" because it " purchas[ ed] the insurance, select[ed] the benefits, ident if [ ied] the employee-participants, and distribut[ed] enrollment and claim f orm s. " Id. at 236 (footnote omitted). Nestle w as not nearly so active, going only so far as to make the insurance available and assisting w it h enrollment and the t ransf er of documents betw een its employees and the defendant. The defendant argues that Nestle identified the employees w ho could participate in the AD&D insurance but " t he effective date of insurances or coverages under a Component Plan may be delayed or depend on evidence of insurability," AR 565, and Nestle em ploy ees could " elec t the level of coverage [they] desire from the various options list ed in the enrollment materials. Some options may be subject to evidence of insurabilit y . " AR 700. These elements of the policy, w hic h indicate that the def endant retained control over w hic h employees w ere " insurable, " preclude the

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court from finding that Nestle " est ablished or maintained" the AD&D policy. Because the court has found as matters of fact (1) that Nestle did not endorse the AD&D policy, (2) that the AD&D policy is not an ERISA " plan, " and (3) t hat Nestle did not " est ablish or maintain" the AD&D policy, the court concludes t hat the AD&D policy at issue here is not governed by ERISA. Therefore, this act ion does not " arise under" ERISA and the court does not have jurisdiction over it . Consequently, the court must remand this matter to Montgomery Circuit Court. IV . Conclusion A c c ordingly , IT IS ORDERED that the defendant' s motion to amend its notice of removal, R. 27, is DENIED. IT IS FURTHER ORDERED that the plaintiff' s motion to remand, R. 24, is GRANTED, and this matter is REMANDED to Montgomery Circuit Court. IT IS FURTHER ORDERED that all remaining motions are DENIED AS MOOT. This matter shall be STRICKEN from the active docket.

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