Silverman v. Unum Group et al
Filing
13
ORDER granting 7 Motion to Dismiss -- For the reasons set forth in the ATTACHED WRITTEN MEMORANDUM AND ORDER, defendant's motion to dismiss the complaint is granted. However, the dismissal is without prejudice and plaintiff is granted leave to file an amended complaint in conformity with the Court's Memorandum and Order NO LATER THAN AUGUST 30, 2015. The Clerk of the Court is directed keep this case open pending the filing of an amended complaint. SO ORDERED by Judge Dora Lizette Irizarry on 7/30/2015. (Irizarry, Dora)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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NEIL SILVERMAN,
:
:
Plaintiff,
:
:
-against:
:
UNUM GROUP, UNUM & THE PAUL :
REVERE LIFE INSURANCE COMPANY,
:
:
Defendants.
:
:
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DORA L. IRIZARRY, U.S. District Judge:
MEMORANDUM & ORDER
14-CV-6439 (DLI) (SMG)
Plaintiff Neil Silverman (the “Plaintiff”) commenced this action on August 28, 2014 in
the Supreme Court of New York, Richmond County against insurance companies, Unum Group,
Unum, and The Paul Revere Life Insurance Company (collectively the “Defendants”), who
provided disability insurance coverage to Plaintiff during his employment at Chip-Tech Ltd. On
October 31, 2014 Defendants timely removed this action to the United States District Court for
the Eastern District of New York pursuant to 28 U.S.C. § 1332, claiming diversity jurisdiction as
Plaintiffs and Defendants reside in separate states and the amount in controversy exceeds
$75,000. (See Notice of Removal, Dkt. Entry No. 1.)1
Plaintiff seeks long-term disability benefits and alleges that his claim for benefits was
calculated improperly and then terminated early.
(Compl. ¶¶ 20-22, Dkt. Entry No. 6.)
Specifically, the complaint alleges that Defendants: (1) breached their contract with Plaintiff’s
employer; (2) breached their contract with Plaintiff; and (3) breached their implied covenant of
good faith and fair dealing with Plaintiff. (Id. ¶¶ 24-47.) Defendants move to dismiss the
1
The notice of removal, while filed in this Court, requested removal to the United States District Court for
New Jersey where apparently defense counsel’s offices are located. There is no other connection to New Jersey. No
party objected to the case remaining in this Court.
complaint, arguing that Plaintiff’s claims are preempted by the Employee Retirement Income
Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. (2006), and that Plaintiff’s requests
for damages are not permitted by ERISA. (Mem. of Law in Supp. of Defs.’ Mot. to Dismiss at 1
(“Defs.’ Mem.”); Dkt. Entry No. 7.) Plaintiff opposes contending that ERISA does not apply to
the plan because: 1) Plaintiff is not considered an employee under ERISA; 2) the plan is a “top
hat plan;” and 3) the plan falls under the safe harbor provision. (See generally Mem. of Law in
Opp’n to Defs.’ Mot. to Dismiss (“Pl.’s Opp’n”), Dkt. Entry No. 9.) In the alternative, Plaintiff
seeks leave to file an amended complaint alleging a cause of action under ERISA. (Pl.’s Opp’n
at 6-7.) Defendants do not oppose Plaintiff filing an amended complaint. (Mem. of Law in
Further Supp. of Defs.’ Mot. to Dismiss (“Defs.’ Reply”) at 3, Dkt. Entry No. 12.) For the
reasons set forth below, Defendants’ motion is granted, and Plaintiff is granted leave to file an
amended complaint NO LATER THAN August 30, 2015.
BACKGROUND
Plaintiff was part owner and employee of Chip-Tech Ltd. (Pl.’s Opp’n at 2.) Plaintiff
owned fifteen percent of Chip-Tech Ltd. and his siblings, Robert Silverman and Ivy Raffe,
owned seventy and fifteen percent of Chip-Tech Ltd., respectively. (Id.) On or about April 1,
1993, Plaintiff’s company obtained a long-term disability insurance policy (“the plan”) from
Defendants that covered only the three owners of the company. (Id.; Compl. ¶ 11; Participating
Employer Application attached as Exhibit A to Defs.’ Reply.) The plan, bearing number 54685,
stated that, should Plaintiff become disabled, Defendants would provide disability income in the
amount of $5,000 per month until Plaintiff reached the age of 65. (Compl. ¶ 11.) Plaintiff
complied fully with the plan terms. (Id. ¶ 12.)
In or around October 2009, Plaintiff injured his neck and back as a result of lifting
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heavy objects on the job. (Id. ¶ 15.) After Plaintiff was injured, Defendants determined that
Plaintiff was disabled and began making payments to Plaintiff under the plan in or about
February 2011. (Id. ¶¶ 18-19.) However, according to Plaintiff, Defendants miscalculated
Plaintiff’s income and made lower payments to Plaintiff than he was entitled to receive. (Id. ¶
20.) Defendants then ceased making payments to Plaintiff altogether in August 2013. (Id. ¶ 21.)
Plaintiff remains disabled and claims that Defendants owe him $5,000 per month, minus any
amount Defendants paid to Plaintiff and any amount Plaintiff received in monthly benefits such
as social security and worker’s compensation, from October 2009 to the present and continuing
until Plaintiff is no longer disabled or turns 65 years old. (Id. ¶¶ 23, 35-36.)
DISCUSSION
I.
Legal Standard
Rule 12(b)(6) of the Federal Rules of Civil Procedure states that a defendant may move
for dismissal of a complaint, in lieu of an answer, for “failure to state a claim upon which relief
can be granted.” FED. R. CIV. P. 12(b)(6). To determine whether dismissal is appropriate, “a
court must accept as true all [factual] allegations contained in a complaint,” but need not accept
“legal conclusions.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949 (2009). For this
reason, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice” to insulate a claim against dismissal. Id. Moreover, “[t]o survive a
motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007)). “[W]here the well-pleaded facts do not permit the court to infer more than the
mere possibility of misconduct, the complaint . . . has not shown that the pleader is entitled to
relief.” Id. at 1950 (internal citations and quotation marks omitted).
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Generally, consideration of a Rule 12(b)(6) motion to dismiss is limited to the complaint
itself. Faulkner v. Beer, 463 F. 3d 130, 134 (2d Cir. 2006). However, “[c]onsideration of
materials outside the complaint is not entirely foreclosed.” Id. A court may consider statements
and documents “incorporated in [the complaint] by reference,” Cortec Indus., Inc. v. Sum
Holding L.P., 949 F. 2d 42, 47 (2d Cir. 1991), as well as documents “integral” to the complaint,
without converting a motion to dismiss into one for summary judgment.2
Int’l Audiotext
Network, Inc. v. Am. Tel. & Tel. Co., 62 F. 3d 69, 72 (2d Cir. 1995).
II.
Plaintiff’s Long-Term Disability Insurance Policy is an ERISA Plan because
Plaintiff is an Employee under ERISA
Pursuant to 29 U.S.C. § 1002, an ERISA plan is defined as either an “employee welfare
benefit plan,” or an “employee pension benefit plan,” or a plan that is both. An “employee
welfare benefit plan” is one that is:
[E]stablished or maintained by an employer or by an employee organization . . . for the
purpose of providing for its participants or their beneficiaries, through the purchase of
insurance or otherwise, (A) . . . benefits in the event of sickness, accident, disability,
death or unemployment . . . .
Id. § 1002(1). To qualify as an ERISA plan, the plan “must provide benefits to at least one
employee.” Rand v. Equitable Life Assur. Soc. of U.S., 49 F. Supp. 2d 111, 116 (E.D.N.Y.
1999); see also Private Capital Investments, LLC v. Schollard, 2014 WL 2587721, at *4
(W.D.N.Y. June 10, 2014).
For purposes of determining whether a plan covers at least one employee, the Court
cannot consider the owner of the corporation an “employee” where the corporation is “wholly
owned by the individual or by the individual and his or her spouse.” 29 C.F.R. § 2510.3-3. The
2
Here, the plan between Plaintiff and Defendants is integral to the complaint because Plaintiff relied on its
terms when drafting the complaint and all parties to the litigation were aware of and had access to it. Chambers v.
Time Warner, Inc., 282 F. 3d 147, 153 (2d Cir. 2002). Accordingly, the Court considers the plan without converting
the instant Rule 12(b)(6) motion into one for summary judgment. See Int’l Audiotext Network, Inc., 62 F. 3d at 72.
4
Second Circuit has not addressed whether a plan is governed by ERISA where the only
participants are shareholder co-owners of a corporation who are not spouses. However, the
Supreme Court offered some guidance in Raymond B. Yates, M.D., P.C. Profit Sharing Plan v
Heldon, 541 U.S. 1 (2004). While the Supreme Court addressed the question whether a working
owner could qualify as an employee participant in an ERISA pension plan that also covered
other nonowner employees, and not specifically whether a plan covering only shareholder coowners qualified as an ERISA plan, it offers guidance in interpreting the ERISA statute to
determine who is covered. The Supreme Court looked solely to the statutory language and found
that “ERISA's text contains multiple indications that Congress intended working owners to
qualify as plan participants.” Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 541
U.S. 1, 12 (2004). Relying on the explicit language in ERISA regulation 29 C.F.R. § 2510.3-3,
the Supreme Court held that “[p]lans that cover only sole owners or partners and their spouses . .
. fall outside Title I [of ERISA]'s domain. Plans covering working owners and their nonowner
employees, on the other hand, fall entirely within ERISA's compass.”3 Id. at 21 (emphasis in
original).
Relying on the Yates decision, the Fifth Circuit applied the Supreme Court’s reasoning to
shareholder co-owners of a business in Provident Life & Acc. Ins. Co. v. Sharpless, 364 F.3d 634
(5th Cir. 2004). Looking exclusively to the ERISA regulation language, the Fifth Circuit held
that shareholder co-owners were considered employees under ERISA and that their plans,
therefore, were ERISA plans because the definition of an employee in ERISA excludes owners
of corporations only held by one individual and his or her spouse, not multiple shareholder coowners of a corporation. See id. at 639. The Fifth Circuit in reaching its decision also was
3
Plaintiff’s reliance on Yates to support his argument that the plan is not covered by ERISA is
unsubstantiated as he relies on the section in Yates that discusses Title IV of ERISA. (Pl.’s Opp’n at 3.) Title IV of
ERISA applies to pension plans only, not benefit plans like the one at issue here.
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guided by Department of Labor Advisory Opinion 76-67, which “explained that a plan covering
only corporate shareholders was exempt from ERISA only if the company was wholly owned by
one shareholder or by the shareholder and his or her spouse.” Id (citing to Dep’t of Labor
Advisory Opinion 76–67, 1976 WL 5082 (May 21, 1976)) (emphasis added).
The facts in the present case are closely analogous to those in Provident Life, and the
Court finds the Fifth Circuit’s reasoning persuasive. In Provident Life, five shareholders owned
the corporation and participated in a benefit plan exclusively for the owners.
Here three
shareholders owned Chip-Tech Ltd. and the plan was available exclusively to them. For the
ERISA exemption to apply, the corporation would need to have been owned by one person and
the individual’s spouse, but as Plaintiff owned Chip Tech Ltd. along with Robert Silverman and
Ivy Raffe, the ERISA exemption does not apply. Therefore, Plaintiff is considered an employee
under ERISA and his plan is an ERISA plan. Additionally, Plaintiff also was paid a salary and
hired by the corporation, further supporting his treatment as an employee for ERISA purposes.
(See Compl. ¶ 8.)
III.
Plaintiff’s State Law Claims are Preempted by ERISA
ERISA broadly preempts “any and all State laws insofar as they may now or hereafter
relate to any employee benefit plan” as defined under the statute. 29 U.S.C. § 1144(a). “Given
this broad scope, ERISA will preempt even general state laws that are not directed toward benefit
plans in cases where those laws would have ‘a connection with or reference to’ an ERISA plan.”
Constas v. Highland Hosp., 2015 WL 1432592, at *2 (W.D.N.Y. Mar. 27, 2015) (citing Pilot
Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47–48 (1987)). “Thus, a state law of general application,
with only an indirect effect on an [ERISA] plan, may nevertheless be considered to ‘relate to’
that plan for preemption purposes.” Smith v. Dunham-Bush, Inc., 959 F.2d 6, 9 (2d Cir. 1992).
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Courts in the Second Circuit have consistently held that causes of action for breach of contract
and breach of the duty of good faith and fair dealing are preempted by ERISA.4 See, e.g., Smith,
959 F.2d at 8 (holding that state breach of contract claim is preempted by ERISA), Lanahan v.
Mutual Life Ins. Co. of New York, 15 F.Supp.2d 381 (S.D.N.Y. 1998) (holding that state breach
of contract claim is preempted by ERISA), Weiss v. CIGNA Health Care, Inc., 972 F.Supp. 748
(S.D.N.Y. 1997) (holding that state breach of the duty of good faith and fair dealing claim is
preempted by ERISA).
As discussed above, Plaintiff’s plan is an ERISA employee welfare benefit plan. In his
complaint, Plaintiff alleges only state law breaches of contract and the duty of good faith and fair
dealing. As all these claims relate to the ERISA plan, his state law claims are all preempted by
ERISA. The plan even included a warning to Plaintiff that his plan may be covered by ERISA.
(See ERISA Attachment attached as Exhibit A to Defs.’ Reply.) Therefore, Defendants’ motion
to dismiss is granted with regard to all of Plaintiff’s state law claims.
Plaintiff incorrectly asserts that ERISA preemption does not apply to his plan because it
was a plan “‘maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of highly compensated employees,’” otherwise known as a “top
hat plan.” (Pl.’s Opp’n at 5 (quoting 29 U.S.C. § 1051)). Top hat plans, while exempted from
certain ERISA provisions, are not exempted from section 1144 of ERISA, which contains the
preemption provision. See 29 U.S.C. § 1144, Paneccasio v. Unisource Worldwide, Inc., 532
F.3d 101, 114 (2d Cir. 2008) (holding that “ERISA preempts state law claims that relate to top
hat plans.”). Therefore, Plaintiff’s plan, whether a “top hat plan” or not, is subject to the
preemption clause in ERISA.
4
New York State law also does not allow a separate cause of action for breach of the implied covenant of
good faith and fair dealing when a breach of contract claim is asserted based on the same facts. See Harris v.
Provident Life and Acc. Ins. Co., 310 F.3d 73, 81 (2d Cir. 2002).
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Plaintiff further contends that his plan is covered under the “safe harbor” provision, 29
C.F.R. § 2510.3-1(j), because it meets all of its criteria. (See Grimo v. Blue Cross/Blue Shield of
Vermont¸ 34 F.3d 148, 152 (2d Cir. 1994) (group health insurance plans must meet all the safe
harbor provision criteria to be excluded from ERISA coverage). The safe harbor provision
provides that ERISA does not apply to a group or group-type insurance program offered by an
insurer to employees or members of an employee organization, where:
(1) No contributions are made by an employer or employee organization;
(2) Participation [in] the program is completely voluntary for employees or members;
(3) The sole functions of the employer or employee organization with respect to the
program are, without endorsing the program, to permit the insurer to publicize the
program to employees or members, to collect premiums through payroll deductions or
dues checkoffs and to remit them to the insurer; and
(4) The employer or employee organization receives no consideration in the form of cash
or otherwise in connection with the program, other than reasonable compensation,
excluding any profit, for administrative services actually rendered in connection with
payroll deductions or dues checkoffs.
29 C.F.R. § 2510.3-1(j).
Plaintiff’s contention is meritless.
The contract of the plan clearly states that the
“[e]mployer pays entire cost of plan.” (Participating Employer Application at 2.) Therefore, the
plan fails to meet the first criteria of the safe harbor provision. Furthermore, the plan apparently
also would fail to meet the third criteria, as Chip-Tech Ltd. endorsed the plan. “[A]n employer
will be said to have endorsed a [plan] . . . if, in light of all the surrounding facts and
circumstances, an objectively reasonable employee would conclude . . . that the employer had
not merely facilitated the program's availability but had exercised control over it or made it
appear to be part and parcel of the company's own benefit package.” Sanfilippo v. Provident Life
and Cas. Ins. Co., 178 F.Supp.2d 450, 456 (S.D.N.Y.2002) (quoting Johnson v. Watts Regulator
Co., 63 F.3d 1129, 1135 (1st Cir.1995)). Here, Chip-Tech Ltd. actually entered into the plan
with Defendants, and the plan’s terms and conditions are all directed to the “participant
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employer,” or Chip-Tech Ltd.
(See generally Participating Employer Certificate, General
Provisions, Premiums, Termination, and Participant Employer Application attached as Exhibit A
to Defs.’ Reply.) The plan’s termination agreement also makes clear that Chip-Tech Ltd. had
control over termination of the plan, and not the individual employees. (See Termination.) The
plan’s plain terms demonstrate that Chip-Tech Ltd. endorsed the plan. Thus, the plan also fails
under the third criteria of the safe harbor provision.
IV.
Plaintiff is Granted Leave to Amend
A participant or beneficiary is empowered under ERISA's civil enforcement scheme to
bring an action “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). As Defendant does not object to Plaintiff amending his complaint to
include ERISA causes of action, the Court grants Plaintiff leave to amend. The amended
complaint must be filed NO LATER THAN August 30, 2015 in conformity with this
Memorandum & Order.
V.
Damages
As the Court grants Defendants’ motion to dismiss, the Court declines to address the
issue of damages. When Plaintiff files his amended complaint, he must include only those
claims and damages permitted under ERISA.
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CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss is granted in its entirety.
However, Plaintiff may file an amended complaint asserting any claims he may have under
ERISA in conformity with this Memorandum & Order no later than August 30, 2015. The Clerk
of the Court is directed not to close this case.
SO ORDERED.
Dated: Brooklyn, New York
July 30, 2015
_______________/s/_____________
DORA L. IRIZARRY
United States District Judge
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