Jammal et al v. American Family Insurance Company et al
Filing
114
Memorandum Opinion and Order granting in part and denying in part #77 defendants' motion for summary judgment.Defendants Motions for Summary Judgment as to the claims for all remaining named Plaintiffs (ECF #70 , #75 , #79 ) are DENIED. Plaintiffs Motion on the Statute of Limitations is also DENIED. (ECF #82 ). A Status Conference set for 5/7/2015 at 10:30 AM. Judge Donald C. Nugent(C,KA)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
WALID JAMMAL, et al.,
Plaintiffs,
v.
AMERICAN FAMILY INSURANCE
GROUP, et al.,
Defendants.
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CASE NO. 1:13 CV 437
JUDGE DONALD C. NUGENT
MEMORANDUM OPINION
AND ORDER
This case is before the Court on four separate Motions for Summary Judgment, filed by
the Defendants. (ECF #70, 75, 77, 79). One motion has been filed with regard to each of the
four named Plaintiffs in the Second Amended Complaint. The Plaintiffs filed a joint opposition
to each of Defendants’ motions. (ECF # 100); and the Defendants filed replies addressing each
individual motion for summary judgment. (ECF #106, 107, 108, 109). The case is now ripe for
review.
Procedural and Factual Background1
Plaintiffs, Walid Jammal, and Dana LaRiche filed this proposed class action on February
28, 2013, against American Family Insurance Company (Group), American Family Mutual
Insurance Company, American Family Life Insurance Company, and American Standard
Insurance Company of Wisconsin. On April 5, 2013, the Complaint was amended, adding
American Family Termination Benefits Plan, Retirement Plan for Employees of American
Family Insurance Group, American Family 401K Plan, Group Life Plan, Group Health Plan,
Group Dental Plan, Long Term Disability Plan, American Family Insurance Group Master
Retirement Trust, 401K Plan Administrative Committee, and The Committee of Employee and
District Manager Retirement Plan as Defendants.2 (ECF #21). The Amended Complaint also
added named Plaintiffs Patricia McClain-Evans, Kathleen Tuersley, Cinda J. Durachinsky, and
John Vincent. (ECF #21).
Defendants challenged the First Amended Complaint through a Motion to Dismiss,
which was denied by the Court on August 9, 2013. On September 27, 2013, the Court issued an
opinion postponing class discovery until discovery relating the named Plaintiffs was complete
and dispositive motions relating to those Plaintiffs had been addressed.
On June 30, 2014, the Complaint was amended a second time. The Second Amended
1
The factual summary is based upon the parties’ statements of facts. Those material facts
that are controverted and supported by deposition testimony, affidavit, or other
evidence are stated in a light most favorable to the non-moving party. Such statements are
taken as true for purposes of this Summary Judgement Motion only, and should not be
considered established for purposes of any future trial.
2
The term “Defendants” will be used to refer to all Defendants, as well as, at times, to only
the Defendant employers.
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Complaint added named Plaintiff, Nathan Garrett, and eliminated Dana LaRiche, Patricia
McClain-Evans and John Vincent as named Plaintiffs. (ECF #67). Count One of the Complaint
seeks declaratory judgment affirming that Plaintiffs and purported class members are
“employees” for all purposes, including but not limited to ERISA; declaring that the Termination
Benefits Plan is an employee benefit plan subject to ERISA’s vesting and benefit accrual
provisions; declaring that certain plan provisions violate ERISA; and, declaring that the
Plaintiffs are entitled to reformation of the contracts and restitution of benefits allegedly
withheld by American Family in violation of ERISA. Count Two seeks injunctive relief
prohibiting Defendants from continuing to mis-classify its agents as independent contractors;
prohibiting Defendants from implementing benefits plans that do not comply with ERISA;
ordering American Family to comply with ERISA requirements with regard to the Termination
Benefit Plan; and, ordering Defendants to recalculate and pay benefits under the proper
calculation of benefits as provided by ERISA.
Count Three is a Claim of benefits under ERISA § 502(a)(1)(B), seeking payments under
the Termination Benefit Plan in accordance with ERISA requirements. Count Four seeks
restitution, contract reformation, and actual damages arising from Defendants’ alleged breach of
fiduciary duty arising from their refusal to recognize that the benefits provided under the
Termination Benefits Plan were vested and non-forfeitable pursuant to ERISA’s requirements,
and for failing to follow ERISA accrual and vesting requirements. Counts Five and Six seek
damages and injunctive relief based on Plaintiffs failure to provide Plaintiffs with health and
welfare benefits offered to other employees, including a retirement plan, 401K plan, group health
plan, group dental plan, group life plan, and long term disability plan, that are offered to those
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workers American Family has classified as employees.
Defendants have filed Motions for Summary Judgment challenging the claims of the four
named Plaintiffs. Defendants claim that Plaintiffs Nathan Garrett, Kathleen Tuersley, and Walid
Jammal, are all barred from asserting any of their claims under the applicable statutes of
limitations/repose. With regard to Ms. Durachinsky, Defendants do not assert a statute of
limitations defense in connection with her claims under Counts Three and Five (request for
benefits).
Defendants also contend that none of these Plaintiffs can be classified as
employees, and they are, therefore, not entitled to any ERISA benefits. Further, Defendants
claim that all four of these Plaintiffs are barred from raising the claims in Counts One, Two, Five
and Six because they failed to exhaust their administrative remedies. In addition, Defendants
allege that Plaintiff Walid Jammal is barred by res judicata from raising any of the state claims
because he previously filed suit against American Family and the case was dismissed with
prejudice following a settlement between the parties.
The Plaintiffs dispute which period of limitations is applicable to the challenged claims
and argue that equitable tolling would allow the Court to hear all of the stated claims. They also
contend that there is sufficient evidence upon which this Court could find that Plaintiffs are
employees, not independent contractors, therefore making them eligible for ERISA benefits.
Further they argue that any attempt to exhaust administrative remedies would have been futile.
Finally, Mr. Jammal argues that res judicata does not operate under the circumstances of this
case to bar his current claims.
The relevant facts and arguments applicable to the statute of limitations defense vary
somewhat for each individual Plaintiff, so each will be addressed separately in connection with
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the Defendants’ individual arguments for dismissal on this basis. Any common facts supporting
the remaining claims will be addressed in the appropriate section below.
Summary Judgment Standard
Summary judgment is appropriate when the court is satisfied “that there is no genuine
issue as to any material fact and that the moving party is entitled to a judgment as a matter of
law.” FED. R. CIV. P. 56(c). The burden of showing the absence of any such “genuine issue”
rests with the moving party:
[A] party seeking summary judgment always bears the initial responsibility of
informing the district court of the basis for its motion, and identifying those portions
of ‘the pleadings, depositions, answers to interrogatories, and admissions on file,
together with affidavits, if any,’ which it believes demonstrates the absence of a
genuine issue of material fact.
Celotex v. Catrett, 477 U.S. 317, 323 (1986) (citing FED. R. CIV. P. 56(c)). A fact is “material”
only if its resolution will affect the outcome of the lawsuit. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986). Determination of whether a factual issue is “genuine” requires
consideration of the applicable evidentiary standards. The court will view the summary
judgment motion in the light most favorable to the party opposing the motion. Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
Summary judgment should be granted if a party who bears the burden of proof at trial
does not establish an essential element of their case. Tolton v. American Biodyne, Inc., 48 F.3d
937, 941 (6th Cir. 1995) (citing Celotex, 477 U.S. at 322). Accordingly, “[t]he mere existence of
a scintilla of evidence in support of the plaintiff’s position will be insufficient; there must be
evidence on which the jury could reasonably find for the plaintiff.” Copeland v. Machulis, 57
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F.3d 476, 479 (6th Cir. 1995) (citing Anderson, 477 U.S. at 252). Moreover, if the evidence
presented is “merely colorable” and not “significantly probative,” the court may decide the legal
issue and grant summary judgment. Anderson, 477 U.S. at 249-50 (citations omitted). In most
civil cases involving summary judgment, the court must decide “whether reasonable jurors could
find by a preponderance of the evidence that the [non-moving party] is entitled to a verdict.” Id.
at 252.
Once the moving party has satisfied its burden of proof, the burden then shifts to the
nonmover. The nonmoving party may not simply rely on its pleadings, but must “produce
evidence that results in a conflict of material fact to be solved by a jury.” Cox v. Kentucky Dep’t
of Transp., 53 F.3d 146, 149 (6th Cir. 1995). FED. R. CIV. P. 56(e) states:
When a motion for summary judgment is made and supported as provided in this
rule, an adverse party may not rest upon the mere allegations or denials of the
adverse party’s pleading, but the adverse party’s response, by affidavits or as
otherwise provided in this rule, must set forth specific facts showing that there is
a genuine issue for trial.
The Federal Rules identify the penalty for the lack of such a response by the nonmoving party as
an automatic grant of summary judgment, where otherwise appropriate. Id.
In sum, proper summary judgment analysis entails “the threshold inquiry of determining
whether there is the need for a trial--whether, in other words, there are any genuine factual issues
that properly can be resolved only by a finder of fact because they may reasonably be resolved in
favor of either party.” Anderson, 477 U.S. at 250.
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Statute of Limitations/Repose
Defendants challenge Plaintiffs’ ability to bring their claims based on the applicable
statutes of limitation.
The Court found at the time it addressed Defendants’ Motion to Dismiss
the First Amended Complaint that the parties did not present sufficient information to allow the
Court to determine when the statute of limitations was triggered from most of the alleged claims.
At that time the issue was dependent on facts and circumstances not before the court and was not
ripe for consideration.3 The parties have since been allowed the benefit of significant discovery,
and have presented two sets of briefing to the Court on this issue. However, as set forth below,
they have still failed to present much of the necessary information required for a final
determination of this issue.
A. Counts One, Two, Three, Five and Six
As set forth in the Court’s Memorandum and Opinion denying Defendants’ Motion to
Dismiss the First Amended Complaint, all of the claims raised in the Plaintiffs’ Complaint are
subject, at most, to a six year statute of limitations, with the exception of Count Four, which will
3
Although the Court stated in its Order denying Defendants’ Motion to Dismiss, that
Plaintiff Duranchinsky was the only named plaintiff to file within the applicable statute of
limitations on Count Four, that was based on the Defendants’ position (and Plaintiffs
failure to present a valid alternative argument) that the signing of the agent agreement was
the trigger point for the running of the statute of limitations. That opinion was limited by
the arguments presented to the Court at that time, and was relevant only to the resolution
of the Motion to Dismiss the First Amended Complaint. Having now reviewed the
specific factual claims in the Second Amended Complaint, and having taken into account
the factual information now before the Court through the parties’ briefing on the statute of
limitations and summary judgment, the Court finds that there are additional considerations
relevant to the statute of limitations issues that may bring other Plaintiffs’ claims within
the appropriate applicable periods of limitation with regard to Count Four.
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be addressed separately below. Determining the applicability of a six year statute of limitations,
however, actually does little to answer the ultimate question: Are these Plaintiffs are barred from
pursuing their claims?
What was missing at the motion to dismiss stage was the information relevant to
determining when the statute of limitations began to run for each of the individual claims.
Defendants assert that the limitations period should have begun on the date each agent signed
their agency agreement. Plaintiffs have argued instead that the triggering event is when it
became clear that they would be permanently treated as employees rather than independent
contractors. There are other arguments raised in the summary judgment and statute of
limitations briefings that contend the training period for the agents should not be considered as
part of the period of limitations because the parties agreed and expected that Defendants would
exert significant control over the agents during this training period. Further, Plaintiffs now argue
that the statute of limitations should be indefinitely tolled because the Defendants represented,
and continue to represent, to the IRS that its sales agents are independent contractors and not
employees, thereby intentionally obscuring their true status.
Both parties have focused exclusively on the question of when the Plaintiffs should have
been aware of the facts that allegedly made them employees. They have both argued that the
that the limitations period should be based on this finding, though Plaintiffs argue it is also
subject to tolling. However, looking at the Complaint, it appears that not all of the alleged
claims would necessarily have accrued at the time Plaintiffs were first treated as employees.
There is no cause of action for being treated as an employee, while being classified as a
independent contractor. Rather, the claims in the Complaint are all based on a denial of ERISA
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benefits, or a failure to properly administer an ERISA plan. An ERISA denial of benefits claim
accrues “when a fiduciary gives a claimant a clear and unequivocal repudiation of benefits.”
Redmon v. Sud-Chemie Ins. Retirement Plan for Union Employees, 547 F.3d 531, 538 (6th Cir.
2008). The Defendants argument would require the Court to find that this repudiation comes
when the parties sign the agent agreement setting forth the benefits available to the agents as
independent contractors. Plaintiffs’ argument, on the other hand, would require a finding that no
repudiation can occur until after Plaintiffs knew they were being treated as employees and were,
therefore, entitled to benefits. The Court instead finds that no clear and unequivocal repudiation
of benefits can occur until after the Plaintiffs were entitled to the payment of benefits and failed
to receive them. This is in keeping with the decision of the Sixth Circuit Court of Appeals in
Redmon wherein the Court of Appeals found that although there arguably may have been a
repudiation of survivor benefits when a waiver of benefits was executed and alternate retirement
payments were made to and accepted by the employee, repudiation was not clear and
unequivocal until after the employer failed to pay out the ERISA survivor benefits at the time
they would have otherwise come due. Redmon at 539.
Consequently the ERISA payment of benefit claims would accrue only when Defendants
failed to pay benefits after they allegedly came due; the administrative claims would arise when
those requirements were disregarded.4 Those dates vary depending on the specific benefit
4
When looking at the three year limitations period for breach of fiduciary duty triggered by
“actual knowledge”, a plaintiff has actual knowledge of a claim when he or she has
“knowledge of all the facts, not that the facts establish a cognizable legal claim under
ERISA.” Brown v. Owens Corning Investment Review Committee, 622 F.3d 564, 570-571
(6th Cir. 2010). Defendants argument that the statute of limitations on all counts was
triggered by the signing of the agent agreement indicating Defendants intention of treating
them as independent contractors and defining the benefits plans would make some sense
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sought, and may depend on a variety of factors, including but not limited to: whether benefits
were required to be provided during an employees training period; when retirement benefits
should have vested if Plaintiffs were in fact employees; and, whether and when Plaintiffs should
have known that Defendants’ alleged control would not cease after training ended. Neither party
has provided sufficient information upon which this Court could determine when the payment of
each type of ERISA benefits should allegedly have occurred, and thereby determine the date of
the denial of benefits or administrative failure that triggers the running of the statute of
limitations for each separate claim.
For example, Plaintiffs assert a claim for benefits under the Defendants’ 401K program.
This claim would accrue once an employee became eligible for but did not receive benefits. In
order to determine when that occurred, the Court would need to know when employees became
eligible for participation in such a plan. Did an employees right to participate in the 401K
program begin upon the signing of an employment agreement; upon completion of a training
period; or after a set vesting period? Many of the same questions arise in connection with the
provision of other health and welfare benefits sought by the Plaintiffs. In addition, although a
claim for termination benefits could not have accrued prior to an agent’s termination, which
dates have been provided, the equitable claims for failing to properly fund and vest the
termination program under ERISA may have accrued at some earlier date. The parties, however,
have not provided any information on the vesting or administrative requirement provisions under
under this definition. However, this “actual knowledge” standard technically applies only
to the three year limitations period under Count Four which contains an “actual
knowledge” requirement and was not intended to define the moment of accrual of all
ERISA claims.
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the Defendants’ other termination benefits plans. The Complaint claims that the ERISA vesting
date can be anywhere between three and five years after hire;5 however, there is no actual
evidence that would allow the Court to determine an exact date that would trigger the running of
the limitations period on this issue.
Once the claim accrual date is determined, Plaintiffs argue that equitable tolling should
apply to extend the period of limitations on all claims. Equitable tolling is not available for
Count Four as discussed separately below. With regard to the remaining claims, equitable
tolling may be available for ERISA denial of benefits claims under rare circumstances. See, Rios
v. Kelly, 2014 U.S. Dist. LEXIS 44422 *6-7 (N.D. Ohio Feb. 13, 2004)(citing GrahamHumphreys v. Memphis Brooks Museum of Art, Inc., 209 F.3d 552, 560-61 (6th Cir. 2000).
Under the circumstances of this case, Plaintiffs could not have had any knowledge that they had
a cause of action available to them prior to being treated as employees and not independent
contractors. They could not have filed an action in anticipation of a breach of the agency
agreement which promised to treat them as independent contractors. This would mean that the
signing of the agency agreement should not be the trigger for the statute of limitations in this
case.
Plaintiffs were not entitled to benefits unless and until they were treated as employees,
and, therefore, the action did not accrue until sometime after they were allegedly treated as
employees and were denied benefits. Each Plaintiff was aware of how the Defendants were
treating them. Therefore, they would have had knowledge of the facts necessary to spur them
5
This assertion still leaves open the question of the hire date for purposes of vesting: is it
the date of hire into the training program, the date of graduation from training when the
Plaintiffs became full agents, or some other date established by contract or by law?
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toward action in pursuit of their rights under ERISA by the time an action accrued in this case
and there would be no need for equitable tolling beyond the date of accrual.
Absent sufficient information to determine the exact triggering date for the running of the
applicable statutes of limitations, summary judgment cannot be granted on these grounds. All
that can be certainly stated based on the information provided by the parties at this time is that
all applicable statute of limitations on all counts (except Count Four addressed below) would
have run within six years after the termination date of each individual agent. By termination,
each employee would unquestionably have been aware of the conditions and controls that were
in place during their working relationship with Defendants, and all claims for benefits would
have accrued.
Kathleen Tuersley separated from the Defendants sometime in 2009; Plaintiff Walid
Jammal was terminated December 8, 2011; Nate Garrett submitted his allegedly forced
resignation on August 18, 2011; and, Cinda Durachinsky was terminated in June of 2013, two
months after she joined this lawsuit. This lawsuit was originally filed on February 28, 2013.
Therefore, as all named Plaintiffs separated from Defendants within six years of filing suit (after
February 28, 2007) they will all survive summary judgment on the statute of limitations in
connection with Counts One, Two, Three, Five and Six. This holding should not be construed as
a finding that all claims were brought within the applicable statute of limitations on every claim,
but only that there has been insufficient evidence presented to support a finding in favor of
Defendants on these grounds, at this time.
B. Count Four
Count Four raises a direct claim for breach of fiduciary duty based on a failure to provide
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termination benefits in accordance with ERISA requirements. No ERISA action may be
commenced for breach of a fiduciary’s responsibility, duty, or obligation after the earlier of:
(1) six years after (A) the date of the last action which constituted a part of the
breach or violation, or (B) in the case of an omission the latest date on which the
fiduciary could have cured the breach or violation, or
(2) three years after the earliest date on which the plaintiff had actual knowledge
of the breach or violation; except that in the case of fraud or concealment, such
action may be commenced not later than six years after the date of discovery of
such breach or violation.
29 U.S.C. § 1113. An ERISA plaintiff has “actual knowledge” when he or she has "knowledge
of all the relevant facts, not that the facts establish a cognizable legal claim under ERISA.”
Brown v. Owens Corning Inv. Review Comm., 622 F.3d 564, 570 (6th Cir. 2010).
Such two part tests have been held to establish an absolute cut-off for the assertion of
claims, which is not subject to equitable tolling.6 The United States Supreme Court has held
that, under federal law, when a statute specifically provides one time period which does not
begin to run until after the discovery of an injury, and a second time period that is not reliant on
when an injury is discovered, the legislative intent must be to set an absolute cut-off without
6
Defendants label the six year outside cut-off as a statute of repose. However, this is not
necessarily the correct terminology. Although the two-part limitation in the case cited by
Defendants, Lopardo v. Lehman Bros., Inc., 548 F. Supp. 2d 450, 459-64 (N.D. Ohio
2008), did include both a “statute of limitations” and a “statute of repose,” the two
limitations periods in the statute at issue here both qualify as statutes of limitation. The
Lopardo opinion, while acknowledging an inconsistency in the use of these two labels,
came to the conclusion that a statute of repose, under federal law, was traditionally a time
limitation based on an event other than the creation of the harm. For example, when a
cause of action is banned within a period of time after the sale of a product, regardless of
when a defect was imparted or a harm may have occurred, this limitation would be a
“statue of repose.” In this case, the limitation at issue is based on the date of the actual
breach or other mis-deed, and not on, for example, the first date of employment or some
other event that is not necessarily related to the date an injury is caused or incurred.
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regard to issues of discovery or equitable tolling. Lampf v. Gilbertson, 501 U.S. 350, 363 (1991).
The only way to give effect to both sections of the statute is to read the longer (three year)
period as an absolute outside limit on bringing a claim. Id. at 363. Thus, absent a showing of
fraud or concealment, Count Four must have been brought within six years after the last action
constituting a breach or violation, or within three years of each Plaintiff’s discovery of
Defendants’ alleged breach or violation.
Neither the Second Amended Complaint, nor any of the briefing provided by Plaintiffs
have sufficiently alleged fraud or concealment of the alleged violation. Plaintiffs attempt to
show fraud and concealment by alleging that Defendants knowingly and improperly argued to
the IRS that Plaintiffs were independent contractors. This, however, is insufficient to establish
fraud or concealment as against the Plaintiffs. There is no allegation that Defendants somehow
concealed their treatment of the Plaintiffs from the Plaintiffs themselves. No could such an
argument survive any logical review. However Defendants may have categorized the
employment relationship, Plaintiffs were aware of the actual level of control being exerted over
them. This knowledge, paired with their knowledge that they did not receive termination
benefits under ERISA is all that is required to begin the running of the limitations period.
Therefore, the statute of limitations applicable to Count Four is three years from the time each
agent was terminated.
Kathleen Tuersley separated from the Defendants sometime in 2009; Plaintiff Walid
Jammal was terminated December 8, 2011; Nate Garrett submitted his allegedly forced
resignation on August 18, 2011; and, Cinda Durachinsky was terminated in June of 2013, two
months after she joined this lawsuit. This lawsuit was originally filed on February 28, 2013, less
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than three years after the termination dates of Walid Jammal, Nate Garrett, and Cinda
Durachinsky. Their claims under Count Four are, therefore, considered timely. Kathleen
Tuersley, however, having terminated her relationship with Defendants prior to February 28,
2010, is barred from pursuing her claim for breach of fiduciary duty under Count Four.
Res Judicata
Defendants argue that Walid Jammal’s claims should be dismissed on the basis of res
judicata/claim preclusion. Mr. Jammal and others previously filed a lawsuit against six
American Family entities in the summer of 2010. (Jammal Depo., Ex. 400, pp. 8-9). This
lawsuit did not raise any ERISA claims, including those set forth in the instant Complaint.
Rather, it raised a breach of contract claim based on several alleged violations of the Agent
Agreement. (Jammal Depo. Ex. 400; April 18, 2011 Jammal Depo. at 16-23). These alleged
breaches included unilateral changes in rate pricing, assignment of territories, underwriting
standards and other practices that the Plaintiffs alleged were meant to drive them out of business
and resulted in forced terminations of their agency agreements. That lawsuit was dismissed with
prejudice on December 3, 2013, upon settlement of the parties.
According to Mr. Jammal’s brief in this case, the settlement agreement in the prior case
specifically included a statement saying: “The parties agree that the release of claims in
Paragraph 2 above does not include a release of the claims asserted in Jammal et al. v. American
Family Insurance Company, et al., United States District Court for the Northern District of Ohio,
Eastern Division, Case no. 1:13-cv-437.” No copy of the settlement agreement was provided to
the Court and the citation given for this statement in Plaintiffs’ brief does not provide a link to
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any evidence verifying the language of the settlement agreement. That said, Defendants do not
challenge that this language was a part of the prior settlement agreement.
In order for claim preclusion to bar Mr. Jammal’s claims, Defendants must show that the
prior suit was resolved by a final, valid decision on the merits by a court of competent
jurisdiction. There is no dispute that the prior case at issue here was dismissed with prejudice by
the court pursuant to a settlement agreement between the parties. Ohio law holds that a
settlement agreement between parties resulting in a dismissal with prejudice operates as res
judicata to the same extent as an adjudication on the merits. See, e.g., Daniel v. Shorebank
Cleveland, 2010-Ohio-1054 (Cuy. Ct. App. 2010). Further, although the settlement agreement
purportedly specified that it did not release any claims pending in the instant case, neither did it
waive any defenses Defendants may have had to these claims.
Plaintiffs have not challenged Defendants assertion that this action involves the same
parties or their privies or that this action or that these claims could have been litigated in the first
action.7 However, in order to benefit from the defense of claim preclusion, Defendants must
show that the this action arose out of the same transaction or occurrence that was the subject
matter of the previous action. Hapgood v. City of Warren, 127 F.3d 490, 493 (6th Cir. 1997).
They have failed to do so.
The fact that both cases arise out of Mr. Jammal’s employment relationship with
American Family is insufficient to satisfy the nexus requirement for claim preclusion. Austin v.
7
Based on the Court’s finding that the claims relating to termination benefits did not arise
until after the agents’ termination, this element is not satisfied with regard to Mr. Jammal’s
claims for termination benefits or breach of fiduciary duty based on a failure to pay ERISA
compliant termination benefits.
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Club E., Inc. 2011-Ohio-119 (2011). Yet this is the only nexus between the claims in both cases.
The instant case does not arise from an alleged breach of the Agent Agreement’s language or
intent. In fact, with regard to benefits, the Defendants appear to have followed the contract
language exactly. Rather this case arises from Defendants’ treatment of Mr. Jammal following
the execution of the agreement, which treatment is alleged to have rendered execution of the
agreement illegal under ERISA. The claims and relief sought in the two cases do not arise from
the same facts and occurrences and are not “logically related” as that term was construed in
Lisboa v. City of Cleveland Heights, 2014 U.S. App. LEXIS 15321, *5-7 (6th Cir. Aug. 6, 2014).
Defendants attempt to prove the required nexus by pointing to Mr. Jammal’s deposition
testimony in the prior case wherein he expressed that he believed he was not being treated as an
independent contractor. Although this testimony may prove that he could have brought this case
at that time, this satisfies a different requirement under claim preclusion. It does not, however,
prove a nexus between the claims in the two cases at issue. The testimony regarding his
frustration with feeling like he was being treated as an employee and not an independent
contractor was not necessarily relevant to the specific claims set forth in the prior cases’s
Complaint. American Family’s decision to change rates, underwriting policies, territory
assignments, and other such factors whether or not it violated the terms or intent of the Agent
Agreements involve decisions they control whether their agent is deemed to be an independent
contractor or an employee. They are not based on the same operative facts as they claims
centered on how they treated their agents with regard to general independence and control over
their own working conditions and their own office management.8 Therefore, Defendants’
8
Mr. Jammal stated during discovery that American Family continued to exercise control
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motion for Summary Judgment against Mr. Jammal on the basis of res judicata is denied.
Exhaustion of Remedies
Defendants also claim that the Plaintiffs’ ERISA claims should be barred they did not
exhaust their administrative remedies prior to initiating this lawsuit. “The administrative scheme
of ERISA requires a participant to exhaust his or her administrative remedies prior to
commencing suit. . . .” Miller v. Metropolitan Life Ins. Co., 925 F.2d 979, 986 (6th Cir. 1991).
However, where a claimant demonstrates that “pursuing available administrative remedies would
be futile, the purposes behind the requirement of exhaustion are no longer served, and thus a
court will release the claimant from the requirement.” Kennedy v. Empire Blue Cross & Blue
Shield, 989 F.2d 588, 588 (2d Cir. 1993); Pease v. Hartford Life & Accident Insurance Co., 449
F.3d 435, 446 (2d Cir. 2006). Failure to exhaust administrative remedies is an affirmative
defense that must be established by the Defendants with the requisite level of proof. Pease, 449
F.3d at 446.
Neither side has provided any case law addressing the issue of whether an
“unacknowledged” employee (or wrongfully designated employee) is relieved of the duty to
attempt administrative remedies under the futility exception. However, based on the
circumstances of the case, it appears more likely than not that any attempt the Plaintiffs might
over “every significant aspect of [his] business” following his graduation from the training
program by “retaining approval power of [his] hiring and firing of [his] agency staff,
requiring specific office hours and enforcing a dress code, to assigning [him] additional
projects for which [he] was paid no additional compensation and mandating meeting
attendance and the utilization of American Family sales techniques....” (ECF #88, ¶ 22).
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have made to pursue ERISA benefits through the administrative process would have been futile.
Defendants contended then, and still contend that their agents are independent contractors with
no standing to pursue benefits. They have argued this position repeatedly to the IRS when
challenged on the issue of tax treatments, and have litigated the issue repeatedly in various
courts. Further, the termination benefits supplied to the agents have not been treated as an
ERISA plan by the Defendants and, therefore, Defendants would not have addressed them
through ERISA’s administrative procedures. Defendants have provided no evidence or reason to
convince the Court that any attempt by these agents to pursue a claim for benefits under ERISA
administrative procedures would have been anything other than futile.
Employee Status
Finally, Defendants seek summary judgment on the issue at the heart this matter: whether
the Plaintiffs in this case were employees or independent contractors. Based on the evidence
presented to the Court thus far in these proceedings, Defendants contend that the agents were all
independent contractors as a matter of law. Plaintiffs argue that the evidence would allow the
Court to determine that they are employees as a matter of law, or in the alternative that there is at
least a remaining material question of fact on this issue which should be determined at trial.
Courts considering who may be an employee for purposes of ERISA have adopted a
common-law test for distinguishing between and employee and an independent contractor, or
other service provider. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323 (1992);
Moore v. Lafayette Life Ins. Co., 458 F.3d 416, 439 (6th Cir. 2006). “The determination of
whether a plaintiff qualifies as an employee is a ‘mixed question of law and fact’ that a judge can
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normally make as a matter of law.” Weary v. Cochran, 377 F.3d 522, 524 (6th Cir. 2004).
The parties agree that the common law test for determining who is an employee looks
mainly at the degree to which the hiring party retains the right to control the manner and means
by which the service is accomplished. Darden, 503 U.S. at 323-24. This determination requires
an analysis and balancing of the following factors:
the skill required; the source of instrumentalities and tools; the location of the
work; the duration of the relationship between the parties; whether the hiring
party has the right to assign additional projects to the hired party; the extent of the
hired party’s discretion over when and how long to work; the method of payment;
the hired party’s role in hiring and paying assistants; whether the work is part of
the regular business of the hiring party; whether the hiring party is in business;
the provision of employee benefits; and the tax treatment of the hired party.
Id.; Moore, 458 F.3d at 439 (citing Violence v. Reid, 490 U.S. 730, 751-52 (1989)). These
factors are not necessarily exclusive, nor is any single factor dispositive. “[A]ll of the incidents
of the relationship must be assessed and weighed with no one factor being decisive.” Darden at
324.
Subsequent to the completion of briefing in this case, the Sixth Circuit issued an opinion
in the case of Keller v. Miri Microsystems, Case No. 14-1430, decided March 26, 2015, and
citing Rutherford Food Corp. v. v. McComb, 331 U.S. 722, 729 (1947), in which it re-focused
the ultimate inquiry under Darden on “whether a worker, even when labeled as an “independent
contractor,” is, as a matter of “economic reality,” an employee. According to the Sixth Circuit
this would occur whenever a worker is “as a matter of economic reality...dependent upon the
business to which they render service. Keller at pg. 5 (quoting Donovan v. Brandel, 736 F.2d
1114, 1116 (6th Cir. 1984)). Although acknowledging that no one factor is determinative under
Darden, the Keller court held that “[a] central question is the worker’s economic dependence
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upon the business for which he is laboring.” Keller at pg. 5 (quoting Brandel, 736 F.2d at 1120).
It is undisputed that Plaintiffs in this case were hired as independent contractors, as
evidenced by the Agent Agreement. However, the fact that Defendants designated the agents as
independent contractors, whether or not they agreed to that designation is not dispositive of the
issue. See, Vizcaino v. Microsoft Corp., 97 F.3d 1187 (9th Cir. 1996)(signing an independent
contractor agreement does not equate to a waiver of employee rights under ERISA). It is also
undisputed that the agents were paid primarily by commission and they were treated as
independent contractors for tax treatment and benefits purposes. These facts, however, advance
the issue no further that the original designation does. They shed little light on ultimate question
of whether Defendants retained the right, in practice, to control the manner and means of the
agents’ work or whether as a matter of “economic reality” the agents “as a matter or economic
reality are dependent upon” the Defendants’ business. Keller at pg. 5 (quoting Donovan v.
Brandel, 736 F.2d 1114, 1116 (6th Cir. 1984)).
Defendants cite to other cases wherein courts have found that American Family agents
were independent contractors. Plaintiffs cite a case in which a court found the agent in question
to be an employee. None of these cases have the same combination of factors, based on the
undisputed evidence, as exist in the instant case. Several of the factors cited as similar by
Defendants are conditions presumed by the contractual designation of independent contractor
status, but do not look at the actual working relationship between the parties. Several other
factors that Defendants claim put them in the category of cases finding independent contractor
status, such as “company did not have right to supervise day-to-day activities,” and agents had
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control over their own hiring and advertising, are contradicted by the evidence Plaintiffs have
presented. Further, the comparison charts submitted by Defendants do not address all of the
factors and circumstances relevant to the determination of employee status.
Defendants also point to the undisputed fact that the agents generally made significant
capital investments in their business. Courts have made it clear, however, that the investment of
the worker must be construed in comparison to the employer’s investment in the overall
operation. Keller at pg. 10, (citing Baker v. Flint Eng’g & Constr. Co., 137 F.3d 1436, 1442
(10th Cir. 1998)). This muddies the issue significantly. Further, the Sixth Circuit reminds us in
Keller that capital investment must also still be considered in the context of whether it provides
evidence of economic independence. If all of the agents’ investments were worthless as
professional investments upon termination of their relationship with Defendants, their capital
infusion may not provide much if any evidence to support an independent contractor designation.
Keller at 11.
Plaintiffs have submitted evidence that would suggest that Defendants were the source of
many of the instrumentalities and tools necessary to the job (i.e., computer equipment and
software); Defendants had veto power over choice over the agent’s hiring choices; the
Defendants had the right to assign unpaid accounts to the agents; Defendants retained and
exercised the right to require specific office hours and a minimum amount of hours spent
working; and Defendants otherwise control the manner and means of the agents’ work. Further,
Plaintiffs submitted at least some evidence that Defendants assigned their geographic sales
territories and unilaterally set the rate and underwriting schedules, as well as dictated which
products the agents could and must sell. The Keller court found that similar restraints on the
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agents independence in obtaining new customers could be found to weigh in favor of employee
status. Keller at 12-13.
Further, other factors set forth in Darden, but not discussed by Defendants, could weigh
in favor of employee status. For example, there is no dispute that the agents were required to
have an exclusive relationship with Defendants and could not sell other insurance policy brands,
even if they were non-competing policies. Further, the agents tended to work for Defendants
long term for a continuous and indefinite term, and with evidence of some variations Plaintiffs
appeared to work exclusively for the Defendants. These factors tend to weigh in favor of
employee status. See, Keller at pg. 6-7, (citing Baker 137 F.3d at 1442). In addition, the work of
selling insurance is without a doubt not only a part, but possibly the most important part of the
regular business of an company who offers insurance. “The more integral the worker’s services
are to the business, then the more likely it is that the parties have an employer-employee
relationship.” Keller at pg. 17, (citing Keeton v. Time Warner Cable, Inc., No. 2:09-CV-1085,
2011 WL 2618926, at *4 (S.D. Ohio July 1, 2011)).
Because there are some undisputed Darden factors weighing in favor of each
classification, the disputed facts surrounding the issue of what amount of control Defendants
exercised or had the right to exercise of the manner and means of the agents’ work will be
critical to a final determination. Based on the evidence available at this stage of the litigation,
and taking the facts in the light most favorable to the Plaintiffs as the non-moving parties, the
Court cannot say as a matter of law that they were not employees for purposes of ERISA. There
remains a question of material fact as to the amount of control Defendants had the right to exert,
or, in fact, did exert over the agents, as well as the degree to which the Plaintiffs were
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economically dependent upon the Defendants’ business. The determination of disputed facts
relevant to the ultimate question and the appropriate weight to give to each factor can be more
properly determined at trial. Therefore, summary judgment is not appropriate on this issue.
Conclusion
For the reasons set forth above, Defendants’ Motion for Summary Judgment as to All
Claims Asserted by Plaintiff Kathleen Tuersley’s Claims (ECF #77) is GRANTED IN PART
and DENIED IN PART. Ms. Tuersley is barred from pursuing her claim for breach of fiduciary
duty under Count Four by the statute of limitations. All other claims brought on her behalf will
proceed to trial. Defendants’ Motions for Summary Judgment as to the claims for all remaining
named Plaintiffs (ECF # 70, 75, 79) are DENIED. Plaintiffs’ Motion on the Statute of
Limitations is also DENIED. (ECF #82). A Status is set for May 7, 2015 at 10:30 a.m.. IT IS
SO ORDERED.
/s/ Donald C. Nugent
DONALD C. NUGENT
United States District Judge
DATED: April 20, 2015
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