Smith et al v. Regional Transit Authority et al

Filing 26

ORDER AND REASONS granting 12 Motion to Dismiss. FURTHER ORDERED that the above-captioned case is DISMISSED without prejudice. Signed by Judge Carl Barbier. (gec, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

SMITH

CIVIL ACTION

VERSUS

NO: 12-3059

REGIONAL TRANSIT AUTHORITY,
ET AL.

SECTION: "J” (4)

ORDER AND REASONS
Before the Court are Defendants' Motion to Dismiss (Rec.
Doc. 12), Plaintiffs' opposition thereto (Rec. Doc. 13), and
Defendants' reply to same (Rec. Doc. 18). Also before the Court
are the parties’ supplemental briefs and exhibits (Rec. Docs. 20,
21). Defendants' motion was set for hearing on May 9, 2013, with
oral

argument.

memoranda,

and

The

Court,

arguments

of

having

considered

counsel,

the

the

record,

motion,
and

the

applicable law, finds that Defendants' motion should be GRANTED
for the reasons set forth more fully below.
PROCEDURAL HISTORY AND BACKGROUND FACTS
This action arises out of claims brought under the Employee
Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §
1

1001 et seq., and the Louisiana Direct Action Statute, La. Rev.
Stat. § 22:655. Plaintiffs in this action are former employees of
New

Orleans

Public

Service,

Inc.

("NOPSI")

and

retirees

of

Transit Management of Southeast Louisiana, Inc. ("TMSEL"). On
December 31, 2012, Plaintiffs filed suit against Defendants, the
Regional Transit Authority ("RTA") and TMSEL, alleging violations
of ERISA and related state law. Plaintiffs assert that Defendants
denied them benefits owed to them under their employee welfare
benefits plan. Specifically, Plaintiffs allege that Defendants
have

denied

them

premium

free

medical

insurance,

quarterly

Medicare premiums, and deductible reimbursements as guaranteed by
their plan. Plaintiffs assert that Defendants have also breached
their fiduciary duties under ERISA.
Plaintiffs' Complaint and the parties' supplemental briefs
set out the following relevant facts.

Prior to 1983, the New

Orleans

transit

system

privately-held

NOPSI.

In

late

the

transitioned
operated

and

into

a

managed

was
1970's

run

by

and

early

publically-held
by

TMSEL.1

1

a

1980's,

system

The

NOPSI

owned

company,

the
by

employees

system
RTA

and

became

In 1983, RTA contracted with ATE Management and Service Company, Inc.
("ATE"), a transit management firm, to operate the transit system. The contract
between the entities provided that ATE would form a wholly-owned subsidiary,
TMSEL, which would be assigned the contract to operate the transit system. Pls.'
Ex. A to Suppl. Brief, Rec. Doc. 21-1, p. 5.

2

employees of TMSEL.2 At the time of the purchase, pursuant to the
Urban Mass Transportation Act of 1964, NOPSI, the transit union,
and the City of New Orleans had a preexisting agreement (“13(c)
Agreement”)

which

provided,

among

other

things,

“fair

and

equitable arrangements” for NOPSI employee benefits.3 On March
17, 1983, RTA and TMSEL, as successors in interest to NOPSI,
agreed

to

assume

the

"rights,

duties,

contained in the 13(c) Agreement.4

and

responsibilities"

Section 2 of the agreement

required that RTA and TMSEL preserve and continue the rights and
benefits of the NOPSI employees.5
On June 28, 1983, RTA completed the purchase of the transit
system from NOPSI with funding from federal grants.6 Likewise, on
that same date, RTA, TMSEL, and NOPSI entered into an additional
agreement, “The Employee and Retiree Pension and Welfare Benefit
Agreement” ("Benefit Agreement"), which specifically recognized
RTA

and

TMSEL's

benefit

obligations.

The

Benefit

Agreement

provided that each employee transferred from NOPSI to "RTA or
2
Pls.' Ex. 1-B to Compl., Rec. Doc. 1-3, p. 1 ("[A]ll members of Local
1560 who are employees of NOPSI will be transferred to employment with
[TMSEL].").
3

Pls.' Ex. 1-A to Compl., Rec. Doc. 1-2, p. 1.

4

Compl., Rec. Doc. 1, p. 7 ¶ 6.

5

Pls.' Ex. 1-A to Compl., Rec. Doc. 1-2, p. 1.

6

Compl., Rec. Doc. 1, p. 6 ¶ 5.

3

TMSEL" would continue to receive the same coverage and benefit
levels that they had received under NOPSI.7 It stated that "RTA
and TMSEL shall be fully responsible, and make any payments due,
for any benefits” of the former NOPSI employees.8 In addition,
the Benefit Agreement also set up a funding structure in order to
ensure

that

agreed

to

the

pension

transfer

a

benefits
single

could
sum

be

of

maintained.

$7,330,000

NOPSI

to

RTA

contemporaneous with RTA's payment of the $21,000,000 purchase
price

for

NOPSI's

transit

properties.

NOPSI

also

agreed

to

reimburse RTA or TMSEL for future insurance premiums and benefit
payments for retirees until the reimbursement equaled $13,000,000
plus a 9% upward adjustment factor per annum. The reimbursements
were

to

be

deposited

in

a

separate

"Reimbursement

Account."

Likewise, the Benefit Agreement also required that the City of
New Orleans establish a bookkeeping account equal to $11,000,000.
RTA and/or

TMSEL was given the right to adjust the retirees

coverage after the Reimbursement Account was exhausted. At the
time that this agreement was reached, RTA was considered to be a
public entity—a political subdivision of the state, and TMSEL was

7

Pls.' Ex. 1-D to Compl., Rec. Doc. 1-4, pp. 2-3.

8

Pls.' Ex. 1-D to Compl., Rec. Doc. 1-4, p. 3.

4

a

privately

owned

Legislature

corporation.9

designated

TMSEL

as

In
a

2004,

the

political

Louisiana

State

subdivision

for

litigation purposes. La. Rev. Stat. § 13:5102. In 2009, TMSEL
ceased operations and stopped providing services to RTA.10 In
January 2012, RTA became 100% owner of TMSEL.11
Plaintiffs

allege

that

from

1983

had

been

administered

by

NOPSI—by

providing

premium-free

medical

insurance,

quarterly

supplemental

Medicare

and

Medicare

premium

it

RTA

employee

payments,

as

2006,

the

life

plan

March

administered

insurance,

benefit

until

reimbursements.

However,

Plaintiffs contend that in the wake of Hurricane Katrina, RTA
and/or

TMSEL

began

charging

medical

insurance

premiums

to

retirees and stopped providing quarterly Medicare premiums and
deductible

reimbursements.

Plaintiffs

assert

that

while

such

9
RTA was created by statute on August 1, 1979 and is defined as "a body
politic and corporate and political subdivision of the state of Louisiana." La.
Rev. Stat. § 48:1654(A). As has been noted, TMSEL was created by virtue of a
private agreement between RTA and ATE. Pls.’ Ex. A to Suppl. Brief, Rec. Doc.211, p. 5.
10

Pls.' Ex. J to Opp., Rec. Doc. 13-10, p. 2. Based on the documentation
provided by the parties it appears that
between 2009 and 2012 the public
transportation system was operated by either Interregional Transit, Inc. or
Veolia Transportation Services, Inc. See Pls.’ Ex. 1 to Suppl. Brief, Rec. Doc.
21-1, p. 5 (2005 Cooperative Endeavor Agreement between RTA and Interregional
Transit, Inc.); Pls.’ Ex. J to Opp. Rec. Doc. 13-10 (2012 Dissolution Agreement
between RTA and Interregional); Pls.’ Ex. 5 to Suppl. Brief, Rec. Doc. 21-5 (2008
Transit Management Agreement between RTA and Veolia Transportation Services,
Inc.).
11

Pls.' Ex. J to Opp., Rec. Doc. 13-10, p. 3.

5

changes

were

initially

deemed

to

be

temporary,

they

have

continued until the present time. Plaintiffs contend that the
changes are in violation of ERISA, and that they are owed the
same welfare benefits that they received from NOPSI. Plaintiffs
also allege that RTA and/or TMSEL breached their fiduciary duties
to Plaintiffs under ERISA.
Defendants filed the instant Motion to Dismiss on February
20, 2013. Plaintiffs responded in opposition on March 5, 2013.
Defendants replied on March 13, 2013. Upon review of the parties'
memoranda,

the

Court

briefing and documents.

issued

an

order

requesting

additional

The parties complied with the Court's

order on April 26, 2013.
THE PARTIES’ ARGUMENTS
Defendants

argue

that

Plaintiffs'

Complaint

must

be

dismissed under Federal Rule of Civil Procedure 12(b)(1) for lack
of

subject

matter

jurisdiction

or,

alternatively,

under

Rule

12(b)(6) for failure to state a claim upon which relief can be
granted. Specifically, under Rule 12(b)(1), Defendants contend
that the benefit plan in question is a "governmental plan" and,
therefore,
report

is

that

jurisdiction

excepted
this
is

from

Court's

ERISA.

the
only

Thus,

ERISA
basis

Defendants

6

framework.
for

Defendants

subject

assert

that

matter
if

the

benefit plan does not fall under ERISA's framework, this Court
lacks any basis on which it can hear this case.
In

furtherance

of

their

argument,

Defendants

make

the

following contentions. Defendants argue that the status of a plan
as governmental is determined at the time that the suit is filed,
not the time that the benefit plan was established. Defendants
contend that when the suit is filed, courts look at the current
status of the entity sponsoring or maintaining the plan. They
aver that if the entity sponsoring or maintaining the benefit
plan is deemed to be a governmental entity under ERISA, then the
court finds that the plan is exempt from the statute.
Defendants report that a "governmental entity" is "any State
or

political

subdivision

thereof,

or

[]

any

agency

or

instrumentality of any of the foregoing."12 In the instant case,
Defendants assert that both RTA and TMSEL are currently political
subdivisions of the state and, therefore, governmental entities.
In

support,

subdivision

Defendants
developed

point
in

to

the

National

definition

Labor

of

Relations

political
Board

v.

Natural Gas Utility District of Hawkins County, Tennessee, 402
U.S. 600 (1971). Defendants argue that in Hawkins, the United

12
Defs.' Mem. in Supp., Rec. Doc. 12-1, p. 6 (quoting 29 U.S.C. §
1002(32)).

7

States

Supreme

Court

held

that

"an

entity

is

a

political

subdivision if it is either (i) created by the State so as to
constitute a department or administrative arm of the government,
or (ii) administered by individuals who are responsible to public
officials or the general electorate."13 Defendants assert that in
this

case,

both

RTA

and

TMSEL

are

currently

designated

as

political subdivisions by state statute. Moreover, they contend
that

the

members

of

RTA

are

appointed

by

public

officials.

Lastly, they report that in 2009, TMSEL ceased operations and no
longer provided services to RTA, and in January 2012, RTA became
100% owner of TMSEL. Therefore, Defendants assert that these
facts

eliminate

any

argument

that

the

plan

is

currently

administered by a private corporation, i.e. TMSEL. As such, they
contend that this is a governmental plan under ERISA.
In the alternative, Defendants also argue that Plaintiffs'
claims should be dismissed under Rule 12(b)(6) because they have
failed to exhaust their administrative remedies. Specifically,
Defendants contend that Plaintiffs have not alleged that they
filed an administrative claim for benefits before filing suit
and/or that their failure to do so was excused on the basis of
futility. Thus, Defendants assert that Plaintiffs’ claims should

13

Defs.' Mem. in Supp., Rec. Doc. 12-1, p. 6.

8

be dismissed.
In response, Plaintiffs argue that this Court has subject
matter jurisdiction because the plan does not fall into the ERISA
governmental

plan

exception.

First,

Plaintiffs

contend

that

Defendants are misrepresenting the welfare benefits plan to the
Court.

Plaintiffs

allege

that

in

other

cases,

these

same

Defendants have actually argued that this plan is an ERISA plan.
As

such,

Defendants

Plaintiffs
current

aver

that

assertions

the

Court

because

they

should
are

not

rely

"baseless

on
and

opportunistic."14 Second, Plaintiffs contend that this plan is
not a governmental plan because the welfare benefit plan was
commenced with private funds and its status has not changed since
it

was

established.

Specifically,

Plaintiffs

assert

that

the

benefit plan was originally funded with NOPSI's private funds,
then it was managed by TMSEL, a private corporation.15 Plaintiffs
argue that despite the statute that Defendants reference, TMSEL
is still listed as a corporation with the Louisiana Secretary of
State, thereby indicating that it is a private rather than a
public entity. Furthermore, Plaintiffs assert that the January

14

Pls.' Opp., Rec. Doc. 13, p. 15.

15

Plaintiffs assert that it is of no consequence that RTA owned the
transportation system. They contend that it is only relevant that TMSEL managed
the system, the workers, and the benefit plan.

9

2012 Dissolution Agreement between RTA and Interregional Transit,
Inc., by which RTA acquired 100% of TMSEL's stock, has no impact
on the status of the benefit plan. Plaintiffs note that the
dissolution

agreement

provides

that

"TMSEL

[will]

remain

the

employer . . . and [will] retain responsibility for the payment
and performance of all outstanding obligations . . . including,
[] wages, benefits, pension or profit sharing plans, and labor
contracts."16 Thus, Plaintiffs contend that RTA and TMSEL are
jointly responsible for the benefit plan and they argue that, in
the Fifth Circuit, "'when a pension plan has been established by
a [private] entity for its employees and the [private] entity's
status as employer has not changed, the plan must be [an] ERISA .
. .

plan."17
Furthermore, Plaintiffs also assert that the benefit plan is

not

a

governmental

interests

involved

plan
in

because

the

there

plan's

are

funding

extensive
and

private

operation.

In

particular, Plaintiffs contend that courts generally apply a six
factor test derived from the Internal Revenue Code to determine
whether the predominate interests in the plan are public or
private. Where the interests are private, Plaintiffs argue that
16

Pls.' Ex. J, Rec. Doc. 13-10, p. 3.

17
Pls.' Opp., Rec. Doc. 13, p. 19 (citing Hightower v. Tex. Hosp. Ass'n.,
65 F.3d 443, 448 (5th Cir. 1995)).

10

courts find that the plan is not a governmental plan. Plaintiffs
assert that in the instant case, the benefit plan was created by
a private entity and is managed in whole or in part by a private
entity.

Likewise,

Plaintiffs

note

that

the

original

Benefit

Agreement provided for a large influx of private money from NOPSI
to maintain the employees' benefits. Thus, Plaintiffs assert that
the plan is a private plan governed by ERISA.
In support of these arguments, Plaintiffs note that the plan
was created for the benefit of hundreds of private employees.
Plaintiffs assert that the United States Department of Labor has
concluded that if a benefit plan covers more than a de minimus
number of private sector employees, then the plan may not be
considered a governmental plan. In conjunction, Plaintiffs also
point to the fact that the Pension Benefit Guaranty Corporation
(“PBGC”), the governmental agency designated to oversee direct
benefit pension plans under Title IV of ERISA, designates the
TMSEL Pension Plan as an ERISA plan on its Web site. Plaintiffs
argue that this designation supports their argument that the
benefit plan is not a governmental plan, but rather, an ERISA
plan.
Lastly,

Plaintiffs

contend

that

to

the

extent

that

Defendants have argued that the benefit plan is currently being

11

maintained with public funds, Defendants cannot rely on their own
mismanagement

of

funds

for

support.

Specifically,

Plaintiffs

argue that the benefit plan was intended to be privately funded;
however, through mismanagement, both RTA and TMSEL contributed to
the diminishing of the private assets that maintained the plan.
Therefore, Plaintiffs assert that Defendants cannot rely on their
own breach of fiduciary obligations to support their position
that the benefit plan is exempt from ERISA.
With respect to Defendants arguments under Rule 12(b)(6),
Plaintiffs assert that they are not required to exhaust their
administrative remedies because they have alleged a statutory
violation

of

ERISA

rather

than

a

mere

denial

of

benefits.

Likewise, Plaintiffs argue that they are not required to exhaust
their administrative remedies because (1) such actions would be
futile; (2) Plaintiffs were threatened with irreparable harm; and
(3)

Plaintiffs

were

denied

meaningful

access

to

the

plan's

administrative procedures. Specifically, Plaintiffs assert that
in February 2012, a Plaintiff in this suit met with the President
of TMSEL and legal counsel for RTA in order to discuss his
welfare benefits. In the meeting, RTA and TMSEL representatives
allegedly

told

the

Plaintiff

that

they

were

unwilling

to

reinstate the welfare benefits that he sought (specifically, the

12

benefits

discussed

in

this

suit).

Furthermore,

they

also

allegedly told the retiree that the funding provided by NOPSI was
exhausted and that if he attempted to initiate litigation, then
the

representatives

retirees
premiums.

pay

would

100%

of

Plaintiffs

demonstrate

that

recommend

the

to

cost

of

that

such

assert

exhausting

RTA

their

that

all

medical

threatening

administrative

of

the

insurance
statements

remedies

in

this

matter would have been futile. Lastly, Plaintiffs contend that
they

were

never

provided

with

any

plan

documents

outlining

possible administrative procedures that they could take. Thus,
they assert that they are not required to exhaust them.
In

reply,

misinterpreted
Furthermore,

and
they

Defendants
misstated
allege

argue
the

that

that

Plaintiffs

have

ERISA

law.

pertinent
Plaintiffs

have

case
refused

to

acknowledge the facts set out in their own complaint—that RTA and
TMSEL are political subdivisions of Louisiana. First, Defendants
reassert that subject matter jurisdiction is determined as of the
time that the complaint is filed. Therefore, they contend that
because RTA is currently

the 100% owner of TMSEL and the sole

fiduciary of the benefit plan, that this is a governmental plan
exempt from ERISA.
Second,

Defendants

argue

that

13

Plaintiffs

have

not

given

effect to the differences between the governmental exemptions in
Title I and Title IV of ERISA. Specifically, Defendants note that
this

is

demonstrated

by

Plaintiffs’

reference

to

the

PBGC.

Defendants contend that the PBGC was created under Title IV of
ERISA and only has oversight over defined benefit pension plans.
Defendants assert that Title IV, as a result, is limited to the
governance

of

defined

benefit

plans

and

does

not

extend

to

welfare benefit plans such as the plan at issue in this case.
Thus, Defendants argue that the PBCG’s classification of the
TMSEL Pension Plan as an ERISA plan is of no consequence to the
current action, which concerns a welfare benefit plan that is
governed by Title I of ERISA. Likewise, Defendants note that
Fifth

Circuit

case

law

has

demonstrated

that

a

plan

may

be

considered a governmental plan under one title and not the other.
As such, Defendants contend that a finding that the welfare
benefit plan in question is a governmental plan and not an ERISA
plan will not conflict with the PBCG’s determination that the
pension plan is an ERISA plan.
Third,

Defendants

assert

that

Plaintiffs

have

failed

to

demonstrate any legal or factual basis to rebut TMSEL’s status as
a political subdivision. Defendants argue that Plaintiffs have
not put forth any proof that disputes that TMSEL is wholly owned

14

and operated by RTA. In fact, Defendants contend that Plaintiffs’
own allegations that TMSEL is “under the complete direction and
control of RTA,” and Plaintiffs service of a public records
request on RTA support Defendants' assertions that the welfare
benefit plan is a governmental plan.18 Likewise, Defendants argue
that TMSEL’s secretary of state filing
the

legislature

subdivision.
that

provide

which

states

Furthermore,
traditional

that

Defendants

cannot trump an act of
TMSEL
assert

governmental

is
that

functions

a

political

corporations
can

still

be

political subdivisions, and that their status as a corporation
does not necessarily conflict with their status as a public
agency.
Lastly,

Defendants

argue

that

Plaintiffs

have

failed

to

establish that exhaustion would have been futile because they
have not made a “clear showing that the plan administrators
harbor bitterness and hostility for the claimant.”19
In addition to the motion and memoranda discussed above, the
Court also requested additional briefing on whether TMSEL may be
considered an agency or instrumentality of Louisiana and/or RTA

18
Defs.’ Reply, Rec. Doc. 18, p. 6 (citing Compl., Rec. Doc. 1, pp. 9-10
¶¶ 12-13.

19
Defs.’ Reply, Rec. Doc. 18, p. 9 (quoting Denton v. First Nat’l Bank,
765 F.2d 1295, 1303 (5th Cir. 1985)).

15

as well as the nature, formation, and funding of TMSEL. The
parties responded to the Court's order by providing the Court
with two separate tests for determining whether TMSEL is an
agency or instrumentality. Defendants argue that if the Court
does not find that TMSEL is a political subdivision, then it
should find that TMSEL is an agency or instrumentality of RTA
under the test that they have proposed. Plaintiffs assert that
TMSEL is not an agency or instrumentality of RTA under their
proposed

test

and/or

Defendants’

test.

The

parties’

proposed

tests are discussed herein.
DISCUSSION
As

a

preliminary

matter,

the

Court

notes

that

“the

opportunity to challenge subject matter jurisdiction can never be
waived by a party’s actions or representations;” therefore, this
Court finds that the prior actions, pleadings, and filings of
Defendants in this case are of no consequence to the question of
subject matter jurisdiction that is currently before the Court.
Krupp v. Lincoln Univ., 663 F. Supp. 289, 290 (E.D. Pa. 1987)
(citing Ins. Corp. of Ireland, Ltd. v. Compagnie Des Baucites de
Guinee,

456

proceed

to

U.S.

694,

analyze

702

(1982)).

subject

matter

As

such,

the

jurisdiction

Court
based

will
on

Defendants’ current allegation: that the welfare benefit plan in

16

question is a governmental plan exempt from ERISA.
A.

Legal Standard

In deciding a motion to dismiss for lack of subject matter
jurisdiction under Federal Rule of Civil Procedure 12(b)(1), “the
district court is ‘free to weigh the evidence and resolve factual
disputes in order to satisfy itself that it has the power to hear
the case.’”

Krim v. pcOrder.com, Inc., 402 F.3d 489, 494 (5th

Cir. 2005).

The party asserting jurisdiction must carry the

burden of proof for a Rule 12(b)(1) motion to dismiss.

Randall

D. Wolcott, M.D., P.A. v. Sebelius, 635 F.3d 757, 762 (5th Cir.
2011). Lack of subject matter jurisdiction may be found (1) on
the complaint alone; (2) on the complaint supplemented by facts
evidenced in the record; and (3) on the complaint supplemented by
the court's resolution of disputed facts. Ramming v. U.S., 281
F.3d 158, 161 (5th Cir. 2001). The standard of review for a
facial challenge to a motion to dismiss under Rule 12(b)(1) is
the

same

12(b)(6).

as

that

for

a

motion

to

dismiss

pursuant

to

Rule

United States v. City of New Orleans, No. 02-3618,

2003 WL 22208578, at *1 (E.D. La. Sept. 19, 2003); see also,13
CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE

AND

PROCEDURE §

3522 (3d ed. 2008).
To survive a Rule 12(b)(6) motion to dismiss, the plaintiff

17

must plead enough facts to “state a claim to relief that is
plausible on its face.”

Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547
(2007)).

A claim is facially plausible when the plaintiff pleads

facts that allow the court to “draw the reasonable inference that
the defendant is liable for the misconduct alleged.”

Id.

A

court must accept all well-pleaded facts as true and must draw
all reasonable inferences in favor of the plaintiff.

Lormand v.

U.S. Unwired, Inc., 565 F.3d 228, 232-33 (5th Cir. 2009); Baker
v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996).

The court is not,

however, bound to accept as true legal conclusions couched as
factual allegations.
B.

Applicable Law

ERISA

was

enacted

of

regulation
Davila,

Iqbal, 556 U.S. at 678.

employee

542

U.S.

200,

by

Congress

benefit
208

to

plans.

(2004).

provide
Aetna

Under

comprehensive

Health,Inc.

ERISA,

an

v.

employee

benefit plan is defined as “any plan, fund, or program . . .
established or maintained by an employer . . . for the purpose of
providing for its participants or their beneficiaries . . .
benefits in the event of sickness, accident, disability, death,
or unemployment . . .
designed

to

be

. 29 U.S. C. § 1002(1). While ERISA was

comprehensive,

18

Congress

did

make

certain

exceptions to its scope. Specifically, Congress determined that
“governmental plans” should be excluded from the ERISA framework.
See 29 U.S.C. § 1003. Title I of ERISA defines a governmental
plan as, "a plan established or maintained for its employees by
the Government of the United States, by the government of any
State or political subdivision thereof, or by any agency or
instrumentality of any of the foregoing." 29 U.S.C.§ 1002(32).
The United States Circuit Court of Appeals for the Fifth Circuit
has explained that the definition of governmental plan under
Title I is disjunctive and, therefore, a plan may be considered
to be a governmental plan where a party can prove that it was
either (1) established by an entity falling within the confines
of the aforementioned definition, or (2) that it is currently
maintained by such an
the

question

before

entity. Hightower, 65 F.3d at 450. Thus,
this

Court

is

whether

RTA

and/or

TMSEL

constitute political subdivisions, agencies, or instrumentalities
of the United States, Louisiana, or

any political subdivision of

either. Defendants have not argued that the benefit plan was
established by a governmental entity, but rather, only argue that
the

benefit

plan

is

maintained

by

a

governmental

entity.

Therefore, the Court will assume for the purposes of this motion
that the benefit plan was established by a private entity and, as

19

such,

at

its

inception

was

an

ERISA

plan.

Thus,

the

only

remaining question, and the one that is dispositive, is whether
the

benefit

plan

is

currently

maintained

by

a

political

subdivision, agency, or instrumentality of the United States,
Louisiana, or a political subdivision of either.
1. Political Subdivision
ERISA does not define the term political subdivision. See
Koval v. Wash. Cnty. Redevelopment Auth., 574 F.3d 238, 240 (3rd
Cir.

2009)

political
Circuit

(noting

that

subdivision).

has

not

the

ERISA

Likewise,

directly

it

addressed

statute

does

appears
whether

not

that
an

define

the

entity

Fifth
is

a

political subdivision for the purposes of ERISA. The parties have
proposed two different tests.
Defendants
whether
developed

an

assert

entity

in

is

National

that
a

the

proper

political

Labor

test

for

subdivision

Relations

Board

determining

is

v.

the

Natural

test
Gas

Utility District of Hawkins County, Tennessee. In Hawkins, the
Supreme Court considered whether a utility district fell within
the political subdivision exception to its jurisdiction under the
National Labor Relations Act ("the NLRB Act"). 402 U.S. at

601.

Like ERISA, the NLRB Act did not define the term "political
subdivision,"

nor

did

the

legislative

20

history

indicate

that

Congress had considered its meaning. Id. at 604. Therefore, the
Court adopted the criteria typically applied by the National
Labor

Relations

Board

("NLRB")

in

agency

determinations.

Specifically, the Court found that the proper test considered
whether the utility district was "(1) created directly by the
state, so as to constitute [a] department[] or administrative
arm[] of the government, or (2) administered by individuals who
[were]

responsible

electorate." Id.

to

public

at 604-05.

officials

or

the

general

The Second, Third, and Seventh

Circuits have all applied this test to ERISA.20
For example, in Rose v. Long Island R.R. Pension Plan, 828
F.2d 910 (2nd Cir. 1987), the court determined the Metropolitan
Transit Authority was a political subdivision under the NLRB
test. Id. at 916. The court explained that "[t]he NLRB guidelines
are a useful aid in interpreting ERISA's governmental exemption,
because ERISA, like the National Labor Relations Act, 'represents
an effort to strike an appropriate balance between the interests
of employers and labor organizations.'" Id. (quoting H.R. Rep.
No. 522, 1974 U.S. Code Cong. & Ad. News at 4647). Likewise, both

20

One district court within the Fifth Circuit has also applied this test
to ERISA. See Scott v. Unum Life Ins. Co. of Am., No. 09-0922, 2010 WL 114404,
at *5 (W.D. La. Jan. 11, 2010). Likewise, although it has not applied this test
to ERISA, the Fifth Circuit has applied this test in the context of an
Occupational Safety and Health Act case. See Startran, Inc. v. Occupational
Safety and Health Review Comm'n, 608 F.3d 312, 320-25 (5th Cir. 2010).

21

the Third and Seventh Circuits have explained that ERISA's broad
concerns with balancing federalism and labor relations parallel
the concerns raised by the NLRB Act and, therefore, make the NLRB
test the appropriate test for determining whether an entity is a
political subdivision under ERISA as well. Koval, 574 F.3d 238,
241-43 (3d Cir. 2009); Shannon v. Shannon, 965 F.2d 542, 547-48
(7th Cir. 1992). Thus, Defendants urge the Court to adopt this
disjunctive test.
Plaintiffs rely on Pridgen v. Texas Mutual Insurance Co.,
No. 04-189, 2004 WL 2070956 (N.D. Tex. Sept. 15, 2004), for their
proposed
court's

test.21

Specifically,

recitation

of

the

Plaintiffs

factors

cite

outlined

to
in

the
the

Pridgen
Internal

Revenue Code, Revenue Ruling 57-128, which, Plaintiffs' argue, is
the definitive test for determining whether an entity falls into
the governmental plan definition:

21

The Court notes that the Plaintiffs generally state that the test in
Pridgen is the proper test to use to determine whether a plan is a governmental
plan. Plaintiffs do not specifically argue that it is the proper test to
determine whether an entity is a political subdivision. However, because the
entirety of Defendants' memo argues that this issue will be decided by
determining that RTA and/or TMSEL is a political subdivision, because this is the
counter test that Plaintiffs propose to the NLRB test, and because Pridgen cites
this test after noting that the terms political subdivision, agency, and
instrumentality are not defined under ERISA, the Court will construe this as
Plaintiffs' proposed counter test for determining whether an entity is a
political subdivision.

22

(1)

whether

governmental

[the

organization]

purpose

and

is

performs

used
a

for

a

governmental

function;
(2) whether performance of its function is on behalf of
one or more states or political subdivision;
(3) whether there are any private interests involved,
or

whether

the

states

or

political

subdivisions

involved have the powers and interests of an owner;
(4) whether control and supervision of the organization
is vested in public authority or authorities;
(5) if express or implied statutory or other authority
is necessary for the creation and/or use of such an
instrumentality, and whether such authority exists; and
(6) the degree of financial autonomy and the source of
its operating expenses.

Id. at *3 (quoting Rev. Rul. 57-128).

While the Pridgen court did note that two other courts had
used these factors, this Court does not find Plaintiffs' reliance
on Pridgen or use of Revenue Ruling 57-128 persuasive for the
purposes

of

determining

whether
23

an

entity

is

a

political

subdivision.22 First, although the Pridgen court cited to Revenue
Ruling 57-128, it did not apply that test to the case before it.
Rather, the court applied separate factors outlined in Revenue
Ruling 89-49 and determined that the plan in question was not a
governmental plan.23 Thus, where the actual case that Plaintiffs
have cited did not rely on the test that Plaintiffs propose, this
Court finds no reason to rely on it either. Second, while the
Pridgen court does specifically reference cases applying Revenue
Ruling

57-128,

consider

the

maintaining

the

courts

question

of

the

plan

in

those

whether

was

cases

the

considered

did

entity
to

not

actually

establishing

be

a

or

"political

subdivision" under the ruling. Instead, in both of the cases
cited in Pridgen, the courts applied Revenue Ruling 57-128 to
determine whether the entities in question were considered to be
"agencies" or "instrumentalities" of the state or of a political
subdivision of the state. See Rose, 828 F.2d at 917-18; Dickerson
v. Alexander Hamilton Life Ins. Co. of Am., 130 F. Supp. 2d 1271,

22

While the Court does not agree that this test should be applied when
determining whether an entity is a political subdivision, it does find that case
law supports its application to the question of whether or not an entity is an
agency or instrumentality. See Rose, 828 F. 2d at 917-18; Dickerson, 130 F. Supp.
2d at 1274; see also Rev. Rule 57-128 (holding that based on the aforementioned
six factors the entity in question was an instrumentality).
23

Pridgen, 2004 WL 2070956 at *4 - 6. Notably, the test that the Pridgen
court did apply did not focus on whether the entities administering the plan were
political subdivisions, agencies, or instrumentalities. Id. Instead, it generally
focused on the question of was the plan a "governmental plan." Id.

24

1274 (N.D. Ala. 2001). Third, in Rose, one of the cases cited in
Pridgen, the court actually applied the aforementioned NLRB test
to determine whether a the entity in question qualified as a
political subdivision. 828 F.2d at 918. It only applied the
revenue ruling test to determine whether

a separate entity was

considered to be an agency or instrumentality. Id. As such, the
Court does not find any support for actually applying Revenue
Ruling

57-128

to

the

interpretation

of

whether

an

entity

qualifies as a political subdivision. Nor does it find that
Plaintiffs’ arguments under this rule are sufficient to overcome
Defendants’ arguments on this point. Accordingly, the Court finds
that

the

NLRB

test

is

the

appropriate

test

for

determining

whether an entity is a political subdivision and will proceed
with that analysis.
Under the NLRB test, a political subdivision is an entity
that is "(1) created directly by the state, so as to constitute
[a] department[] or administrative arm[] of the government, or
(2) administered by individuals who [were] responsible to public
officials or the general electorate."
05.

Under

this

test,

it

is

clear

Hawkins, 402 U.S. at 604that

RTA

is

a

political

subdivision of Louisiana. RTA, "a body politic and a corporate
and political subdivision of the state," was created on August 1,

25

1979 by public act. La. Rev. Stat. § 48:1654. RTA's purpose is
"to plan, design, lease as lessee, purchase, acquire, hold, own,
construct, improve, have an equity in, finance, maintain, and
administer a transit system within the metropolitan area." Id.
These purposes are for the benefit of the people of Jefferson,
Orleans, St. Bernard, and St. Tammany parishes (the geographical
area in which RTA was created). Thus, RTA meets the first prong
of the NLRB test because

it was "created directly by the state,

so as to constitute [a] department[] or administrative arm[] of
the government." See Hawkins,

402 U.S. at 604-05.

Likewise, RTA meets the second prong of the NLRB test. RTA
is administered by a board consisting of "three members from each
participating parish, [who are] appointed by the chief executive
officer of that parish, subject to the approval of its governing
authority” as well as two additional members who are appointed
"by the chief executive officer for the parish with the greatest
percentage of public transit revenue." La. Rev. Stat. § 48:1655.
These members are recommended by the legislative delegation of
each

parish.

appointing
individuals

Id.

All

members

authority."
who

are

Id.

"serve

Thus,

responsible

general electorate." See Hawkins,

26

at
RTA

to

the
is

public

pleasure

of

"administered
officials

or

the
by
the

402 U.S. at 604-05. As such,

this Court finds that RTA is a political subdivision under ERISA.
Defendants also argue that TMSEL qualifies as a political
subdivision under the NLRB test. Because the Court finds that
TMSEL

more

precisely

instrumentality

under

fits

the

ERISA,

it

description
declines

of

to

an

agency

analyze

or

TMSEL’s

status as a political subdivision and makes no findings on that
point.
2. Agency and/or Instrumentality
ERISA does not define the terms agency or instrumentality.
See Rose, 828 F.2d at 917 (noting that the ERISA statute does not
define the terms agency and instrumentality). Again, the parties
have proposed two different tests for determining whether an
entity is an agency or instrumentality.
Defendants argue that the appropriate test for determining
whether an entity is an agency or instrumentality is the six
factor test provided in Revenue Ruling 57-128 that has been
adopted by the Second Circuit. See Rose, 828 F. 2d at 917-18. In
contrast, Plaintiffs assert that the proper test is the Alley
test, which is a three factor test that has been employed by the
D.C. Circuit. See Alley v. Resolution Trust Corp., 984 F.2d 1201,
1206 (D.C. Cir. 1993). Specifically, Plaintiffs argue that this
three

factor

test

is

appropriate

27

because

it

emphasizes

the

employment relationship between the entity in question and its
employees.24
case

Plaintiffs

addressing

focuses

on

the

assert

governmental
importance

of

that

the

plans
the

leading

under

Fifth

ERISA,

employment

Circuit

Hightower,

relationship

in

making determinations as to whether a plan is an ERISA plan.25
Therefore, Plaintiffs contend that this test best comports with
Fifth Circuit case law.
While

the

Court

does

not

disagree

with

Plaintiffs’

characterization of the Hightower court’s focus on the employment
relationship,

it

does

not

find

that

Fifth

Circuit

precedent

requires that the Court apply the Alley test. Rather, the Court
finds that in the instant case, the Revenue Ruling test is more
appropriate. In particular, the Court notes that in applying the
Alley test, the court in that case specifically explained
“a

[Revenue

Ruling]

test

focusing

broadly

on

the

that

extent

of

governmental contacts may be more appropriate [than the Alley

24

The Alley test, as Plaintiffs characterize it, evaluates the following
three characteristics: (1) if the employee is excluded from the state civil
service system; (2) if the employee is subject/not subject to governmental
personnel rules and salary restrictions; and (3) if the employee is allowed/not
allowed to participate in civil servant pension and welfare plans. See Alley, 984
F.2d at 1206-07.
25

Plaintiffs cite Hightower v. Texas Hospital Association as the leading
case on this issue. In particular, Plaintiffs argument refers to the fact that
when determining whether or not a plan’s status had changed under Title IV of
ERISA, the court emphasized that the “‘governmental entity’s status as employer’”
was important. 65 F.3d at 448 (quoting Roy v. Teachers Ins. and Annuity Ass’n,
878 F.2d 47, 50 (2d Cir. 1989)).

28

test] where state-affiliated entities are concerned.” Alley, 984
F.2d at 1205-06 n.11. The court pointed out that in the case
before it, it was only evaluating whether an entity was an agency
or instrumentality of the federal government, not of a state
government or state political subdivision. Id. As such, the Alley
court did not have to address the federalism concerns that are
prevalent

throughout

ERISA’s

legislative

history

and,

consequently, are also the primary reason that the governmental
plan

exception

was

created.

See

Hightower,

65

F.3d

at

448

(discussing ERISA’s legislative history and noting that “Congress
was reluctant to interfere with the administration of public
retirement plans due to the resulting federalism implications”);
Rose,

828

F.2d

at

914

(discussing

the

federalism

concerns

underlying the governmental plan provision). In the instant case,
such federalism concerns are present and, therefore, require that
the Court look more broadly at the relationship between TMSEL and
the

state,

not

just

the

relationship

between

TMSEL

and

its

employees. See Koval, 238 F.3d at 241-42 (finding that the Alley
test should not apply where federalism concerns are implicated).
Thus,

the

Court

finds

that

the

six

factor

test

provided

in

Revenue Ruling 57-128 is the appropriate test for determining
whether TMSEL is an agency or instrumentality.

29

Under the six factor Revenue Ruling test, TMSEL is either an
agency

or

instrumentality

specifically
system

in

to

manage

Jefferson,

parishes.26

As

the

of

and

RTA.

operate

Orleans,

Court

First,

St.

noted

in

the

TMSEL

public

Bernard,
its

was

created

transportation

and

analysis

St.
of

Tammany
RTA,

the

transportation system is for the benefit of the public in those
parishes

and,

as

such,

TMSEL

is

arguably

performing

a

governmental purpose and function. Second, TMSEL performs this
function specifically on behalf of RTA, a political subdivision
of

the

state.

Third,

although

there

are

private

interests

involved in the plan since TMSEL is a private corporation and
NOPSI, TMSEL’s predecessor, was also a private corporation, TMSEL
is currently 100% owned by RTA, a political subdivision of the
state. Thus, a political subdivision currently has the “powers
and interest of an owner.” Fourth, while it is true that TMSEL is
governed

by

an

independent

Board

of

Directors,

the

current

president, secretary, vice-president, and treasurer of TMSEL are
all also employees and/or representatives of RTA.27

Likewise,

throughout its existence TMSEL has operated with a high degree of

26

See Pls.' Ex. A to Suppl. Brief, Rec. Doc.21-1, p. 5 (explaining that
TMSEL was created specifically to run the transit system).
27
See Defs.’ Ex. B to Suppl. Brief, Rec. Doc. 20-1, pp. 2-3; Defs.’ Ex.
4 to Suppl. Brief, Rec. Doc. 20-4, pp. 2-3.

30

oversight

and

control

by

RTA.28

Therefore,

it

follows

that

supervision of the organization is vested in public authorities.
Lastly, TMSEL’s operating expenses and the TMSEL pension plan are
wholly funded by RTA.29 RTA receives its funding through federal
grants, states taxes, and transportation fees.30Accordingly, the
Court finds that TMSEL is an agency or instrumentality of RTA
and, consequently, that the TMSEL welfare benefit plan is a
governmental plan and is excepted from the ERISA framework. Thus,
this Court lacks subject matter jurisdiction over this case.
For the foregoing reasons,
IT IS ORDERED that the Defendants’ motion is GRANTED.
IT

IS

FURTHER

ORDERED

that

the

above-captioned

case

is

28

See Pls.’ Ex. B to Suppl. Brief, Rec. Doc. 21-1, pp. 24-26, 28, 35
(describing the management relationship between RTA and TMSEL and noting that
TMSEL’s general manager and deputy general manager can only be appointed with the
advice and consent of RTA; that RTA retains the right to issue new policies,
rules, and regulations for the transit system; that RTA shall review all TMSEL
pension documentation; that all hourly rates for any exceptional service fees
shall be approved by RTA, that RTA shall audit and inspect all TMSEL books, data,
and records; that TMSEL shall maintain its books at the direction of RTA and that
treatment of revenue shall be directed by RTA).
29

Defs.’ Ex. B to Suppl. Brief, Rec. Doc. 20-1, p. 3 (noting specifically
that from 1983 through 2009 RTA paid TMSEL’s operating expenses, which included
wages and benefits, and that RTA began directly funding the TMSEL benefits from
2009 to present); Pls.’ Ex. B to Suppl. Brief, Rec. Doc. 21-1, p. 35 (noting
specifically that RTA paid TMSEL’s operating expenses, which included wages and
benefits).
30

The Court notes that the fact that funding for the welfare benefit plan
comes from tax revenue is also important. In Hightower, the court explained that
"Government plans received an exemption from ERISA because of their ability to
tax and thereby avoid the pitfalls of underfunding." 65 F.3d at 449 (citations
omitted). The RTA has the power to levy head and use taxes to fund its
operations. La. Rev. Stat. § 1656.

31

DISMISSED without prejudice.
New Orleans, Louisiana this 10th day of May, 2013.

____________________________
CARL J. BARBIER
UNITED STATES DISTRICT JUDGE

32