Terry v. The Pepsi Bottling Group Inc. Long-Term Disability Plan

Filing 14

MEMORANDUM OPINION AND ORDER: (1) Terry's motion to remand, R. 10 , is GRANTED. The case is REMANDED to Letcher Circuit Court. Terry's request for fees and costs, R. 10 , is DENIED. (2) PBG's motion to dismis s or, in the alternative, change venue, R. 7 , is DENIED AS MOOT. (3) All pending motions are DENIED AS MOOT, and this case shall be STRICKEN from Court's active docket. Signed by Judge Amul R. Thapar on 4/14/2015. (RCB)cc: COR, Letcher Circuit Court certified copy w/docket sheet

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
PIKEVILLE
JAMES M. TERRY,
Plaintiff,
v.
THE PEPSI BOTTLING GROUP INC.
LONG-TERM DISABILITY PLAN,
Defendant.

)
)
)
)
)
)
)
)
)
)

Civil No. 15-7-ART

MEMORANDUM OPINION
AND ORDER

***** ***** *****
Plaintiff James M. Terry has filed a motion to remand, alleging that his complaint states a
claim only under state law and does not come within the scope of the civil enforcement provision
of the Employment Retirement Income Security Act (“ERISA”). See R. 10 (Motion to Remand).
The Pepsi Bottling Group Inc. Long-Term Disability Plan (“PBG”)1 disagrees, instead moving
for dismissal or, in the alternative, change of venue pursuant to a forum selection clause. See R.
7 (Motion to Dismiss/Change Venue). Because the complaint states an independent claim for
breach of contract, the Court does not have jurisdiction and the case must be remanded to state
court.
BACKGROUND
This dispute arises out of the workers’ compensation settlement agreement between Terry
and his former employer, Pepsi Bottling Group (“Pepsi”). Pepsi administered the PBG Plan. R.
1-1 ¶ 4. While working for Pepsi, Terry suffered a workplace injury. R. 10-1 at 1. In February
2011, the parties settled his ensuing workers’ compensation claim.
1

Id.

The settlement

The defendant explains that The Pepsi Bottling Group Inc. Long-Term Disability Plan no longer exists and
participants originally in that plan are now participants in the PepsiCo Long Term Disability Program. R. 1 at 1 n.1.
Neither party contends that this change materially affects the analysis here. The Court will use PBG to refer to the
defendant.

agreement contained the following promise regarding Terry’s ERISA benefits:

“In further

consideration of this settlement, the PBG Plan agrees that it will not seek nor be entitled to any
recoupment/offset/reduction in regard to LTD benefits due to other benefits paid. Plaintiff’s
eligibility for LTD benefits is not offset.” R. 10-2 at 3.2
Terry alleges that, in December 2011, PBG started to offset his LTD benefits by the
amount he received in Social Security Disability benefits. R. 1-1 ¶ 6. Terry filed a complaint in
Letcher Circuit Court for breach of contract, claiming that PBG’s actions violated the terms of
the settlement agreement. Id. Importantly, Terry did not allege that PBG violated a provision of
the Plan. Rather, he grounded his cause of action solely in the terms of the settlement agreement.
For relief, Terry requested payment of the benefits he would have received but for the breach of
contract and a declaration that the offset of benefits was a breach of contract. Id. ¶ 7. PBG
timely removed the case to this Court, asserting that the Court had jurisdiction because Terry
“seeks to recover Pepsi Plan benefits” under ERISA. R. 1 at 2–3 (citing ERISA § 502(a), 29
U.S.C. § 1132(a)).
DISCUSSION
A defendant may remove to federal district court only those cases “of which the district
courts of the United States have original jurisdiction.” 28 U.S.C. § 1441(a). District courts have
jurisdiction where the “plaintiff’s well-pleaded complaint raises issues of federal law.” Metro.
Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987). These cases are known as “federal question”
cases. Id. If the plaintiff’s complaint states a claim only under state law (absent the elements

2

The parties do not dispute that the PBG Plan is an ERISA plan, that LTD benefits refer to long-term disability
benefits, or that Pepsi is the administrator of the PBG Plan. See R. 13 at 3. PBG cursorily states that the PBG Plan
“was not a party” to the settlement agreement. R. 12 at 2. PBG, however, makes no further argument regarding the
relevance of this fact. As a result, the Court will not consider it in the analysis. See McPherson v. Kelsey, 125 F.3d
989, 995–96 (6th Cir. 1997) (“It is not sufficient for a party to mention a possible argument in the most skeletal way,
leaving the court to . . . put flesh on its bones.”).

2

required for diversity jurisdiction), federal courts generally do not have federal-question
jurisdiction.
Terry’s complaint alleges a breach of the settlement agreement—a purely state-law issue.
See Cogent Solutions Grp., LLC v. Hyalogic, LLC, 712 F.3d 305, 309 (6th Cir. 2013) (“A
settlement agreement is a type of contract and is governed ‘by reference to state substantive law
governing contracts generally.’” (quoting Bamerilease Capital Corp. v. Nearburg, 958 F.2d 150,
152 (6th Cir. 1992))). No federal issue appears on the face of his complaint. As a result, the
Court does not have federal-question jurisdiction. Further, PBG, which bears the burden of
establishing jurisdiction, does not allege any other basis for federal-court jurisdiction, such as
diversity jurisdiction.

See Harnden v. Jayco, Inc., 496 F.3d 579, 581 (6th Cir. 2007).

Accordingly, his case belongs in state court. See Kokkonen v. Guardian Life Ins. Co. of Am., 511
U.S. 375, 381 (1994) (“[E]nforcement of the settlement agreement is for state courts, unless there
is some independent basis for federal jurisdiction.”).
Even though the face of the complaint does not contain a federal question, PBG contends
that the Court nonetheless has jurisdiction based on ERISA. ERISA, however, does not change
the result. In certain cases, ERISA completely preempts a state law cause of action, which
permits a federal court to exercise jurisdiction even where the federal cause of action is absent
from the face of the well-pleaded complaint.

Metro. Life, 481 U.S. at 62–63.

Complete

preemption creates federal jurisdiction because when Congress “completely pre-empt[s] a
particular area[,]” then “any civil complaint raising this select group of claims is necessarily
federal in character.” Id. at 63–64.
To establish federal-court jurisdiction based on complete preemption under ERISA, the
party seeking removal must demonstrate that the state-law claim comes “within the scope of the

3

civil enforcement provisions of [ERISA] § 502(a).” Aetna Health Inc. v. Davila, 542 U.S. 200,
209 (2004). The relevant provision here, § 502(a)(1)(B), states that “[a] civil action may be
brought . . . by a participant or beneficiary . . . 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.” 29 U.S.C. § 1132(a)(1)(B). A state-law claim falls “within the
scope” of § 502(a)(1)(B) only if the removing party (the defendant) establishes both prongs of
the following two-prong test: (1) the plaintiff “at some point in time, could have brought his
claim under ERISA § 502(a)(1)(B)”; and (2) “there is no other independent legal duty that is
implicated by a defendant’s actions.” Davila, 542 U.S. at 210; see also Gardner v. Heartland
Indus. Partners, LP, 715 F.3d 609, 613 (6th Cir. 2013) (explaining that the test “is in the
conjunctive” (quoting Marin Gen. Hosp. v Modesto & Empire Traction Co., 581 F.3d 941, 947
(9th Cir. 2009))). Because the settlement agreement between Terry and Pepsi establishes an
independent legal duty, removal is not appropriate and analysis of the first prong is unnecessary.
A duty is independent from ERISA where it “is not derived from, or conditioned upon,
the terms of” the ERISA plan. Gardner, 715 F.3d at 614; see Davila, 542 U.S. at 210 (holding
that duty was not independent where the potential liability under state law “derives entirely from
the particular rights and obligations established by the benefit plans”). Terry’s complaint alleges
that PBG’s duty to not offset LTD benefits arose from the workers’ compensation settlement
agreement, not from the terms of the PBG Plan. R. 1-1 at ¶6.
He is correct. Assume that the Plan provides for a payment to Terry of $1000 in LTD
benefits each month and that Terry also receives $500 each month from Social Security.3 The
parties do not dispute that the terms of the Plan require the offset of LTD benefits by the Social

3

For purposes of this opinion, and because the parties do not discuss the actual amounts at issue, the Court assigns
numerical values to simplify the analysis.

4

Security Disability benefits received by the beneficiary. Applying those terms, Terry may
receive only $500 each month in LTD benefits. Now, add the wrinkle of the separate promise
between Terry and Pepsi: the settlement agreement states that the PBG Plan will not offset the
LTD benefits. R. 10-2 at 3. What is the effect of that agreement? No party suggests that the
agreement altered the terms of the Plan itself, and accordingly the Court will assume that the
Plan terms remained the same. Because the Plan’s terms have not changed due to the agreement,
it follows that the duty of PBG under the terms of the Plan also has not changed—to offset
benefits if Terry receives other income. While the agreement does not change PBG’s duty under
the Plan, it does create a separate duty under state contract law. See Kokkonen, 511 U.S. at 381.
A reasonable interpretation of the agreement, and PBG’s corresponding duty, is that PBG
must independently pay Terry the amount that would otherwise have been offset pursuant to the
Plan terms. Using the hypothetical figures above, PBG could meet that obligation by sending
Terry a separate check each month for $500. That separate check is not required by the terms of
the Plan, but rather from the terms of the settlement agreement. Thus, the agreement creates an
independent legal duty divesting the Court of jurisdiction.
That intuitive result finds support in the Sixth Circuit’s decision in Gardner as well as
cases outside the Sixth Circuit. The plaintiffs in Gardner, participants in their employer’s
retirement plan, alleged that an investment firm’s involvement in the dissolution of that
retirement plan violated a state-law duty to not interfere with the plan. The court held that
remand was appropriate because the duty “arises under [state] tort law, not the terms of the
[ERISA plan] itself.” Gardner, 715 F.3d at 614.

Even though the terms of the ERISA plan

“would likely be relevant in measuring the amount of Plaintiffs’ damages,” the duty to not
interfere was a creature of state law independent of ERISA. Id. at 615.

5

In so holding, the court heavily relied on two contrasting Second Circuit cases, both
which provide helpful guidance here. See Stevenson v. Bank of New York Co., Inc., 609 F.3d 56
(2d Cir. 2010); Arditi v. Lighthouse Int’l, 676 F.3d 294 (2d Cir. 2012). In Stevenson, the
plaintiff, a participant in his employer’s retirement plan, was asked to switch jobs to an affiliated
entity. If he accepted the move, however, he would lose his retirement plan benefits. To
sweeten the deal, his employer “promised to maintain Stevenson’s status as a plan participant.”
Gardner, 715 F.3d at 614. Later, however, the employer backed out of the promise. Stevenson
sued for breach of contract, and the employer removed to federal court. The Stevenson court
held that there was no federal question jurisdiction because the contract between the employer
and the plaintiff regarding his plan status created an independent legal duty. Stevenson, 609 F.3d
at 59–61. Specifically, the employer’s “asserted liability under the original complaint d[id] not
derive from the particular rights and obligations established by any benefit plan, but rather from
a separate promise.” Id. at 60 (alterations and quotation marks omitted); see Gardner, 715 F.3d
at 614 (“[T]he Bank’s obligation to maintain Stevenson’s status as a participant did not derive
from the plan—indeed, the plan said the opposite—but instead arose from a ‘separate promise’
made by the Bank.”).
Arditi v. Lighthouse International involved an employment agreement between Arditi
and his employer, Lighthouse.

676 F.3d at 298.

The agreement “recited Lighthouse’s

obligations to the plaintiff (Arditi) under Lighthouse’s pension plan.” Gardner, 715 F.3d at 613.
Lighthouse later denied Arditi benefits, and Arditi sued under state law for a breach of the
agreement.

Lighthouse removed, and the Second Circuit agreed that removal was proper

because ERISA completely preempted Arditi’s complaint.

676 F.3d at 299.

distinguished Arditi’s claims from those asserted in Stevenson.

6

The court

The plaintiff’s rights in

Stevenson “arose not from the bank’s plan, but from the independent agreement that gave him
benefits even though he had no right to them under the plan.” Id. at 300. By contrast, Arditi’s
rights “arose from, and were governed by, the terms of the Plan.” Id. His agreement with his
employer promised no more, and no less, than what the Plan itself contained. Id. (“The Plan
provided more than a mere benchmark for calculating damages; indeed, it was the basis for the
claimed benefits.”). As a result, ERISA completely preempted Arditi’s state-law claims.
The Ninth Circuit’s decision in Marin General Hospital is also instructive. 581 F.3d 941,
947 (9th Cir. 2009). The plaintiff was a hospital that had been assigned a patient’s beneficiary
rights under an ERISA plan. Id. Before treating the patient, the hospital called the ERISA plan
administrator to confirm that the plan would pay 90 percent of the patient’s medical expenses.
Id. at 943. The plan administrator agreed. Id. When the time for payment arrived, the plan did
not pay 90 percent of the expenses, asserting that the plan terms required only a lesser amount.
Id. at 943–44. The hospital sued under state law for various claims, including breach of contract.
The defendants removed to federal court.
On appeal, the Ninth Circuit reversed and remanded to state court. Assessing the motion
to remand under the two-prong Davila test, the Ninth Circuit focused on the fact that the hospital
“does not contend that it is owed this additional amount because it is owed under the patient’s
ERISA plan,” but rather it argued “that this additional amount is owed based on its alleged oral
contract with [the plan administrator].” Id. at 947. Because the plan’s duty to pay the hospital
arose from the oral contract and was absent from the terms of the plan, ERISA did not
completely preempt the hospital’s claims, and federal courts lacked jurisdiction. Id. at 947–48
(“[T]he asserted obligation to make the additional payment stems from the alleged oral contract
between the Hospital and [the plan administrator].”)

7

Terry’s complaint is more similar to Marin and Stevenson than Arditi. Terry admits, and
PBG does not dispute, that the terms of the PBG Plan do not allow for the specific payment of
the benefits that Terry seeks. The sole source of PBG’s duty to pay the specific benefits at issue
is the settlement agreement. That agreement is similar to the hospital’s contract in Marin. Both
contracts allegedly bound the respective Plans to pay certain benefits not required by the Plans
themselves. It is possible that in Terry’s case the amount can only be determined by looking at
the Plan’s terms, but that does not create a cause of action under ERISA. See Gardner, 715 F.3d
at 615 (holding that, while the ERISA plan’s “terms would likely be relevant in measuring the
amount of Plaintiffs’ damages[,] . . . that is beside the point for purposes of Davila’s second
prong”). Consequently, ERISA does not completely preempt the complaint and the case must be
remanded to state court.
When a case is remanded, the court may “require payment of just costs and any actual
expenses, including attorney fees, incurred as a result of the removal.” 28 U.S.C. § 1447(c).
Terry makes a one-sentence request for costs and actual expenses, including attorney fees,
without any argumentation or even a citation to the statute. R. 10 at 1. Barring “unusual
circumstances,” awarding attorney fees is appropriate “only where the removing party lacked an
objectively reasonable basis for seeking removal.” Martin v. Franklin Capital Corp., 546 U.S.
132, 141 (2005) (“Conversely, when an objectively reasonable basis exists, fees should be
denied.”). To receive a fee award, the non-removing party must “establish that the . . . removal
attempt was not objectively reasonable.” Warthman v. Genoa Twp. Bd. of Trs., 549 F.3d 1055,
1061 (6th Cir. 2008). The Warthman court applied the same standard to a request for costs. Id.
Terry, however, makes no argument as to whether PBG’s removal was unreasonable (nor does
he include the amount of fees and costs requested). Moreover, given the complexity of ERISA

8

preemption, PBG had an objectively reasonable basis for removal. Therefore, the request for
costs and fees is denied.
Accordingly, it is ORDERED that:
(1)

Terry’s motion to remand, R. 10, is GRANTED. The case is REMANDED to
Letcher Circuit Court. Terry’s request for fees and costs, R. 10, is DENIED.

(2)

PBG’s motion to dismiss or, in the alternative, change venue, R. 7, is DENIED
AS MOOT.

(3)

All pending motions are DENIED AS MOOT, and this case shall be
STRICKEN from the Court’s active docket.

This the 14th day of April, 2015.

9