Blough v. Cooperative Benefit Administrators Inc et al

Filing 31

ORDER granting 10 Motion to Dismiss; granting 27 Motion to Dismiss. Signed by Honorable Timothy D. DeGiusti on 10/22/2013. (mb)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
MICHAEL BLOUGH,

)
)
Plaintiff,
)
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v.
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)
COOPERATIVE BENEFIT ADMINISTRATORS, )
INC., et al.,
)
)
Defendants.
)

Case No. CIV-13-191-D

ORDER
Before the Court are identical motions for dismissal pursuant to Fed. R. Civ. P. 12(b)(6), one
filed jointly by Defendants Cooperative Benefit Administrators, Inc., National Rural Electric
Cooperative Association, National Rural Electric Cooperative Association Group Benefits Program,
and Craig Kilmet1 [Doc. No. 10], and another filed by Defendant Steve Newton [Doc. No. 27]. The
Motions seek partial dismissal of the Complaint, but do not challenge a claim for benefits under the
Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq. Plaintiff Michael
Blough has timely responded in separate briefs that present identical arguments, and Defendants
have replied. Thus, the Motions are at issue.
The moving defendants are, respectively, the claims administrator for an ERISA plan, the
plan sponsor, the ERISA plan, and individual employees of the first two entities. The Motions seek
the dismissal of Count II of the Complaint, which asserts state law theories of recovery that allegedly
are barred by ERISA preemption and, as to one theory, does not state a claim on which relief can
be granted. The Motions also seek a determination that Plaintiff cannot recover consequential or
punitive damages under ERISA and that certain defendants are not proper parties. In response to
1

The Motion states the Complaint misspells this name, which should be “Kliment.”

arguments regarding Count II, Plaintiff admits he cannot assert a claim under the Oklahoma
Insurance Code regarding unfair and deceptive practices, Okla. Stat. tit. 36, § 1204; he offers to
amend his pleading to omit allegations regarding this statute. See Pl.’s Resp. Br. [Doc. Nos. 20
& 28] at 3. Accordingly, the Court finds that the Motions should be granted to this extent, and
addresses only the remaining issues.
Standard of Decision
“To survive a motion to dismiss [under Rule 12(b)(6)], a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007));
see Robbins v. Oklahoma, 519 F. 3d 1242, 1247 (10th Cir. 2008). Also, the legal sufficiency of a
complaint is properly decided under Rule 12(b)(6). See Smith v. United States, 561 F.3d 1090, 1098
(10th Cir. 2009).
Plaintiff’s Allegations
The Complaint states that Plaintiff was employed by Defendant Rural Electric Coop, Inc.,
which is a member of National Rural Electric Cooperative Association (“NRECA”) and a
participating cooperative in an ERISA plan that it sponsors, National Rural Electric Cooperative
Association Group Benefits Program. Cooperative Benefit Administrators, Inc. (“CBA”) is the
claims administrator for the plan, which includes a long term disability plan. Plaintiff alleges that
he developed medical conditions that prevented him from performing his job, and he attended a
meeting in February, 2009, during which representatives of his employer, NRECA, and CBA
advised him that it would be in his best interest to apply for long term disability benefits. Plaintiff
allegedly was not advised that the definition of “disability” under the plan would change after two
years; he “was specifically advised that he would not be required to take . . . a job that would lower
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his quality of life.” See Compl. [Doc. No. 1] ¶ 18. The Complaint states that Plaintiff last worked
in May, 2009, and was then a plan participant.
Plaintiff applied for long term disability benefits in May, 2009, and was approved by CBA
to receive payments beginning May 25, 2009. However, in May, 2011, CBA allegedly advised
Plaintiff that his long term disability benefits would be terminated as of May 24, 2011, because he
no longer satisfied the plan’s definition of disability. After two years, the plan defines “disability”
as an inability to perform any gainful occupation, not merely the participant’s own occupation.
Plaintiff unsuccessfully appealed the termination decision, and has exhausted his administrative
remedies under the plan. In 2012, after CBA denied Plaintiff’s final appeal, the Social Security
Administration allegedly determined that Plaintiff was disabled and unable to engage in gainful
employment. Plaintiff’s disability for purposes of the Social Security Act was determined to have
commenced in August, 2009.
In Count I of the Complaint, Plaintiff asserts that the decision to terminate his plan benefits
was arbitrary and capricious and that Defendants’ actions were willful, malicious, and done in bad
faith. Plaintiff alleges that Defendants represented he would receive long term disability benefits
until he reached retirement age. For relief, Plaintiff seeks to recover the amount of past due benefits
to which he allegedly is entitled, prejudgment interest, attorney fees, and an order requiring payment
of future benefits. Plaintiff also alleges in Count I that Defendants’ conduct caused him emotional
distress and that he is entitled to punitive damages. See Compl. [Doc. No. 1] ¶ ¶ 34, 38.
In Count II, the Complaint alleges that Defendants failed to perform their duties to provide
truthful and accurate information regarding the long term disability plan and Plaintiff’s benefits, and
to deal fairly with him. Plaintiff also alleges Defendants engaged in unconscionable conduct and
took advantage of his lack of knowledge, experience, “or capacity to a grossly unfair degree.” Id.
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¶ 41. Plaintiff asserts that he is a consumer under the Oklahoma Consumer Protection Act, Okla.
Stat. tit. 15, § 751 et seq., and that Defendants engaged in deceptive and unfair trade practices as
defined by § 752(13) and § 752(14).2 Count II states that as a result of these practices and “unlawful
activity in the provision of benefits and the handling of Plaintiff’s claims . . . , Plaintiff has lost his
disability [benefits], his job, and suffered severe emotional distress and mental anguish.” See
Compl. [Doc. No. 1] ¶ 44.3
Discussion
The Motions present purely legal issues: a) Whether Plaintiff’s state law claim alleging
deceptive and unfair trade practices is preempted by ERISA, 29 U.S.C. § 1144;4 and b) Whether the
plan sponsor and individual employees are proper defendants on Plaintiff’s ERISA claim for unpaid
benefits under 29 U.S.C. § 1132(a)(1)(B).
A.

Federal Preemption
ERISA’s preemption provision is “broadly worded” and “clearly expansive.” Egelhoff v.

Egelhoff ex rel. Breiner, 532 U.S. 141, 146 (2001). It expressly “supersede[s] any and all State laws
insofar as they may now or hereafter relate to any employee benefit plan” covered by ERISA. 29
U.S.C. § 144(a). The reach of this provision has been the subject of numerous judicial decisions,

2

Count II also states that Defendants conduct violated the Oklahoma Insurance Code, but because
Plaintiff has abandoned these allegations, they are disregarded.
3

Although this reference to the loss of Plaintiff’s job is not explained in Count II, the Complaint
states in Count IV that Plaintiff’s employment was terminated in December, 2012, as a result of the
termination of long term disability benefits. Until that time, his employer had allegedly retained him as an
uncompensated employee, and he had continued to participate in an employee retirement plan. Neither the
claim asserted in Count IV, nor a claim asserted in Count III regarding conduct in connection with Plaintiff’s
application for social security disability benefits, is addressed by the Motions.
4

If this issue is answered affirmatively, Defendants are clearly correct that consequential damages
for emotional distress and punitive damages are not available under ERISA. See Allison v. UNUM Life Ins.
Co., 381 F.3d 1015, 1025 (10th Cir. 2004). Plaintiff does not contend otherwise.
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and its preemption of many types of claims is clear. ERISA preempts, for example, Oklahoma tort
claims alleging breach of an insurer’s duty of good faith and fair dealing. See Conover v. Aetna US
Health Care, Inc., 320 F.3d 1076, 1080 (10th Cir. 2003) (“Oklahoma bad faith law is . . . preempted
because it ‘relate[s] to an employee benefit plan’ and conflicts with [ERISA]’s civil enforcement
scheme. ”); see also Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47-48 (1987) (bad faith, breach of
fiduciary duty, and fraud claims preempted); Allison v. UNUM Life Ins. Co. 381 F.3d 1015, 1025
(10th Cir. 2004) (bad faith claim); Pitman v. Blue Cross & Blue Shield, 24 F.3d 118, 121 (10th Cir.
1994) (tortious breach of contract claim); Kelso v. General American Life Ins. Co., 967 F.2d 388,
390-91 (10th Cir. 1992) (misrepresentation claim); Peckham v. Gem State Mutual, 964 F.2d 1043,
1050-51 (10th Cir. 1992) (bad faith and estoppel claims); Settles v. Golden Rule Ins. Co., 927 F.2d
505, 509-10 (10th Cir. 1991) (tort of outrage, fraud, and wrongful death claims). “[A]ny state-law
cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy
conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore
pre-empted.” Aetna Health Inc. v. Davila, 542 U.S. 200, 209 (2004).
Preemption of the precise claim asserted here, alleging violations of the Oklahoma Consumer
Protection Act, has not been squarely decided by the court of appeals. For the same reasons
discussed in other bad faith cases, however, the Court finds that Plaintiff’s state law claim is clearly
preempted. Another judge of this Court has found preemption of similar claims, although expressly
considering a claim under the Massachusetts Unfair Trade Practices Act. See Fortelney v. Liberty
Life Assur. Co., 790 F. Supp. 2d 1322, 1353 (W.D. Okla. 2011). For reasons thoroughly explained
by Judge Friot in Fortelney, the Court finds that Plaintiff’s claim in Count II challenges the
administration of an ERISA plan, conflicts with ERISA’s remedial scheme, and is preempted.

5

Plaintiff seeks to avoid ERISA preemption by arguing that his state law claims are not based
on conduct done in the administration of the plan but conduct “before [he] went on long term
benefits.” See Pl.’s Resp. Br. [Doc Nos. 20] at 8. Although not cited in Plaintiff’s brief, this
argument is apparently based on cases like Woodworker’s Supply, Inc. v. Principal Mutual Life
Insurance Co., 170 F.3d 985 (10th Cir. 1999), in which claims of fraudulent inducement and
violations of the New Mexico Unfair Practices Act were not preempted. ERISA did not preempt
the claims asserted in Woodworker’s Supply, however, because they were brought by the employer
against an insurance company who had provided coverage for its employees. The insurer was sued
“with respect to its pre-plan activity in its role as a seller of insurance, not as an administrator of an
employee benefits plan.” Id. at 991. Plaintiff acknowledges in his argument that his claim is based
on statements that allegedly influenced him “in deciding to go on long term disability,” that is, to
apply for benefits under an existing ERISA plan in which he was a participant. See Pl.’s Resp. Br.
[Doc Nos. 20] at 9. He is bringing a state law claim against ERISA entities – the employer, the
plan, and alleged fiduciaries – based on their alleged misrepresentations of long term disability
benefits available under the plan.
In short, the claim asserted in Count II of the Complaint would affect the administration and
calculation of benefits under the ERISA plan and affect the duties of plan fiduciaries. It would
duplicate or supplement ERISA’s civil enforcement remedy and, therefore, is pre-empted.
B.

Proper Defendants
The movants concede that Count I of the Complaint states an ERISA claim for benefits.

However, the plan sponsor (NRECA) and individual employees assert they are not proper parties
to this claim. They contend the only proper parties are those with decision-making authority
regarding Plaintiff’s claim for disability benefits.
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Plaintiff’s response to this contention is not entirely clear. His briefing discusses ERISA’s
definition of a plan fiduciary, but does not allege that the moving defendants satisfy this definition.
Instead, Plaintiff argues “that even though these defendants may not have been fiduciaries under the
plan they are still subject to liability [on] the Plaintiff’s claims of misrepresentation against them.”
See Pl.’s Resp. Br. [Doc. No. 20] at 10. Because the Court has found any misrepresentation claim
to be preempted, it would appear that Plaintiff has conceded that the moving defendants are not
proper parties and should be dismissed.
According to the Complaint, however, NRECA is both the plan sponsor and the plan
administrator. See Compl. [Doc No. 1] ¶ 3. For purposes of the Motions, this allegation is accepted
as true. Thus, because NRECA may be a plan fiduciary under 29 U.S.C. § 1002(21), it should not
be dismissed under Rule 12(b)(6). On the other hand, the Complaint lacks any factual allegations
that would establish fiduciary responsibilities of the individual defendants, and therefore, these
defendants are entitled to dismissal of Plaintiff’s ERISA claim against them.
Conclusion
For these reasons, the Court finds that Plaintiff’s state law claim in Count II of the Complaint
is barred by ERISA preemption and that the individual movants, Craig Kilmet and Steve Newton,
are not proper parties to Plaintiff’s ERISA claim. This claim and these defendants should be
dismissed with prejudice to refiling.5

5

“[A] dismissal with prejudice is appropriate ‘where [the] complaint fails to state a claim . . . and
granting leave to amend would be futile.’” See Rosenfield v. HSBC Bank, USA, 681 F.3d 1172, 1189 (10th
Cir. 2012) (quoting Brereton v. Bountiful City Corp., 434 F.3d 1213, 1219 (10th Cir. 2006)).
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IT IS THEREFORE ORDERED that the Motions to Dismiss [Doc. Nos. 10 and 27] are
GRANTED. Plaintiff’s state law claim in Count II and Defendants Craig Kilmet and Steve Newton
are dismissed with prejudice.
IT IS SO ORDERED this 22nd day ofOctober, 2013.

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