Smoak et al v. Cangioalosi et al
ORDER AND OPINION GRANTING IN PART AND DENYING IN PART 12 Plaintiff's Motion to reconsider. The Court AMENDS its order of July 24, 2017 (Dkt. No. 10) to permit Plaintiffs to file an amended complaint asserting ERISA claims against all Defendants including the ADP Defendants by September 5, 2017. AND IT IS SO ORDERED. Signed by Honorable Richard M Gergel on 8/14/2017.(sshe, )
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
J. William Smoak, III, and Smoak' s Air
Conditioning Co., Inc.,
Elizabeth Cangialosi; ADP TotalSource,
Inc.; Automatic Data Processing, Inc.;
Automatic Data Processing Insurance
Agency, Inc.; and Aetna Life Insurance
Civil Action No. 2:17-1709-RMG
ORDER AND OPINION
This matter is before the Court on Plaintiffs' motion to reconsider the Court' s order of July
24, 2017, which dismissed with prejudice Plaintiffs' claims against Defendants Elizabeth
Cangialosi, ADP Totalsource, Inc., Automatic Data Processing, and Automatic Data Processing
Insurance Agency, Inc. (collectively, the "ADP Defendants"). For the reasons set forth below, the
Court grants in part and denies in part Plaintiffs motion to reconsider. The claims asserted in the
complaint against the ADP Defendants remain dismissed with prejudice, but Plaintiffs may file an
amended complaint asserting Employment Retirement Income Security Act of 1974 ("ERISA")
claims against the ADP Defendants.
Rule 59(e) of the Federal Rules of Civil Procedure governs motions to alter or amend a
judgment; however, the rule does not provide a legal standard for such motions. The Fourth Circuit
has articulated "three grounds for amending an earlier judgment: (1 ) to accommodate an
intervening change in controlling law; (2) to account for new evidence not available at trial; or (3)
to correct a clear error of law or prevent manifest injustice." Pac. Ins. Co. v. Am. Nat 'l Fire Ins.
Co., 148 F.3d 396, 403 (4th Cir. 1998)(citing EEOC v. Lockheed Martin Corp., 116 F.3d 110, 112
(4th Cir. 1997); Hutchinson v. Staton, 994 F.2d 1076, 1081 (4th Cir. 1993)). "Rule 59( e) motions
may not be used, however, to raise arguments which could have been raised prior to the issuance
of the judgment, nor may they be used to argue a case under a novel legal theory that the party had
the ability to address in the first instance." Id. at 403 (internal citations omitted). Rule 59( e)
provides an "extraordinary remedy that should be used sparingly." Id. (internal citation omitted).
The decision to alter or amend a judgment is reviewed for an abuse of discretion. Id. at 402.
Plaintiffs allege Defendants failed to pay death benefits for decedent Helen B. Smoak, who
was an employee of ADP Totalsource, as agreed under a group life policy Aetna issued to ADP
Totalsource. They filed suit in the Charleston County Court of Common Pleas on May 22, 2015.
Defendants were served between May 30, 2017 and June 4, 2017, and this action was timely
removed on June 29, 2017.
The complaint's allegations are as follows.
The ADP Defendants quoted workers'
compensation and other forms of coverage to Plaintiffs in late 2015 or early 2016, including a sales
presentation. (Dkt. No. 1-1
13-16.) The ADP Defendants specifically represented to Plaintiffs
that Helen Smoak's age would not disqualify for a $300,000 death benefit.
(Id . ~
agreed to purchase employee life insurance policies from the ADP Defendants. (Id.
Smoak died in October 2016. (Id.
26.) Her designated beneficiary, Mr. Smoak, filed a claim
"with Aetna and the ADP Defendants" but Aetna remitted only $60,000, not $300,000. (Id.
27-28.) "Upon inquiry by Mr. Smoak to Aetna and the ADP Defendants, they simply told him
that coverage for Helen B. Smoak was reduced due to her age .... " (Id. if 29.) Based on those
allegation, Plaintiffs assert claims against all Defendants for promissory estoppel (alleging they
relied on Defendants' representation about Ms. Smoak' s eligibility for benefits), breach of contract
(alleging the agreed benefits were not paid), negligence (because Defendants' breached a duty of
care to convey accurate information), negligent misrepresentation (alleging Defendants made false
representations that they had a pecuniary interest in making, which Plaintiffs' relied upon),
negligent supervision (alleging Ms. Cangialosi made false representations about the products she
was selling), and bad faith refusal to pay benefits (alleging the agreed benefits were not paid).
On July 6, 2017, Defendants moved for dismissal under Rule 12(b)(6) of the Federal Rules
of Civil Procedure because ERISA preempts all Plaintiffs' state law claims and 29 U.S .C. § 1132
provides the exclusive remedy available to Plaintiffs. In response, Plaintiffs conceded their claims
are preempted and ask for leave to amend the complaint to proceed under 29 U.S .C. § 1132. (Dkt.
No. 9.) The Court then dismissed the complaint without prejudice as to Aetna and granted leave
to file an amended complaint against Aetna.
Plaintiffs' claims against the ADP Defendants, however, were dismissed with prejudice
because the Court ruled the ADP Defendants are not proper defendants in an ERISA action because
they did not control the administration of the plan at issue. Plaintiffs move for reconsideration of
the dismissal of the ADP Defendants with prejudice, arguing that if the ADP Defendants are not
proper defendants in an ERISA action, then claims against the ADP Defendants cannot be
preempted under ERISA. They seek remand of claims against the ADP Defendants to state court.
Plaintiffs' argument confuses complete preemption and conflict preemption, which is
understandable because the Court's order of July 24, 2017 did not adequately address the
distinction. A state-law claim for denial of benefits is subject to complete preemption under
ERIS A if it is capable of being characterized as a claim authorized by ERIS A ' s civil enforcement
provision, § 502, codified at 29 U.S.C. § 1132(a). Sonoco Prods. Co. v. Physicians Health Plan,
Inc. , 338 F.3d 366, 371 (4th Cir. 2003). Plaintiffs' claims against the ADP Defendants are not
completely preempted by ERISA because the ADP Defendants are not proper defendants for a§
1132(a) action. Claims that are not of a type authorized by § 1132(a) are subject to a conflict
preemption analysis under ERISA § 514, codified at 29 U.S.C. § 1144(a). "Under ordinary or
conflict preemption, state laws that conflict with federal laws are preempted, and preemption is
asserted as a federal defense to the plaintiffs suit." Id. at 3 70- 71 (internal quotation marks
omitted). "Section 514 of ERIS A defines the scope of ERISA ' s preemption of conflicting state
laws: state laws are superseded insofar as they 'relate to' an ERISA plan." Id. at 371. "Congress
intended to preempt at least three categories of state law under § 514: ( 1) laws that mandate
employee benefit structures or their administration, (2) laws that bind employers or plan
administrators to particular choices or preclude uniform administrative practices, and (3) laws that
provide alternative enforcement mechanisms to ERISA' s civil enforcement provisions."
Darcangelo v. Verizon Commc 'ns, 292 F.3d 181, 190 (4th Cir. 2002). Where a state-law cause of
action is subject to ERISA conflict preemption, dismissal with prejudice is appropriate. See, e.g.,
Anderson v. Sara Lee Corp., 508 F.3d 181 , 187 (4th Cir. 2007).
As a threshold matter, the Court determines removal jurisdiction exists because Plaintiffs'
breach of contract claim, which seeks "to recover benefits due to [Plaintiff Smoak] under the terms
of the plan," against Aetna is completely preempted. 29 U.S.C. § 1132(a)(l)(B); see also 28 U.S.C.
§ 1441(c)(l) (an action containing one federal question claim is removable in its entirety);
Darcangelo , 292 F.3d at 195 (holding removal proper where a plaintiff asserted an ERISA plan
administrator breached the plan agreement). The district court must sever and remand all claims
not within the original or supplemental jurisdiction of the court. 29 U.S.C. § 1441(c)(2). But there
appears to be no genuine dispute that all claims in this action "form part of the same case or
controversy" because the only controversy in this case is the proper amount of Ms. Smoak's death
benefit under the plan (including the issue of whether the size of the benefit was misrepresented).
See 28 U.S.C. § 1367(a) (supplemental jurisdiction exits over claims that form part of the same
case or controversy as claims subject to original jurisdiction). Further, Plaintiffs never moved to
The Court therefore considers whether each of Plaintiffs' claims against the ADP
Defendants "relate to" an ERISA plan and are therefore subject to conflict preemption. Plaintiffs'
claims for breach of contract and bad faith refusal to pay benefits are based on the allegation that
agreed plan benefits were not paid. Those claims "relate to" the plan that allegedly was to provide
those benefits because those claims seek to enforce the plan agreement through a mechanism
alternative to ERISA's civil enforcement provision. See Darcangelo, 292 F.3d at 190, 192 ("The
only question is whether [the plaintiffs] claims are brought as an alternative means of enforcing
her rights under ERISA or the plan."). Plaintiffs' claims for promissory estoppel, negligence,
negligent misrepresentation, and negligent supervision rest on the allegation that the size of the
death benefit the plan would provide for Ms. Smoak was misrepresented. Those claims likewise
"relate to" the plan that was allegedly misrepresented because those claims seek to enforce the
plan agreement as allegedly represented through a mechanism alternative to ERISA's civil
enforcement provision. See Griggs v. E.J DuPont de Nemours & Co., 237 F.3d 371, 378 (4th Cir.
2001) ("Generally speaking, ERISA preempts state common law claims of fraudulent or negligent
misrepresentation when the false representations concern the existence or extent of benefits under
an employee benefit plan."); see also, e.g., Hall v. Blue Cross/Blue Shield ofAla., 134 F.3d 1063,
1064-66 (11th Cir. 1998) (ERISA preempted claim that fraudulent misrepresentations regarding
the scope of coverage induced plaintiff to enroll in her employer-provided health benefits plan);
Shea v. Esensten, 107 F.3d 625, 627-28 (8th Cir. 1997) (ERISA preempted state-law claim for
"fraudulent nondisclosure and misrepresentation about [the plan's] doctor incentive programs"
that "limited [the participant's] ability to make an informed choice about his life-saving health
care"); Muse v. Int 'l Bus. Machs. Corp., 103 F.3d 490, 493 (6th Cir. 1996) (ERISA preempted
claim that plaintiffs "would have chosen to participate in the superior benefit plan had IBM not
negligently or intentionally misrepresented to [them] that no further early retirement plans would
be offered"); Carlo v. Reed Rolled Thread Die Co., 49 F.3d 790, 791 (1st Cir. 1995) (concluding
that "ERIS A preempts a state law claim of negligent misrepresentation against an employer based
upon the employer's representations regarding the employee's prospective benefits under an early
retirement program"); Smith v. Dunham-Bush, Inc., 959 F.2d 6, 8-10 (2d Cir. 1992) (ERISA
preempted claim that plaintiff was induced to relocate based on his employer's false, oral
representations regarding pension benefits).
Plaintiffs' state-law claims against the ADP
Defendants therefore are subject to conflict preemption under ERISA and to dismissal with
Plaintiffs alternatively argue that the ADP Defendants should remain as parties under
ERISA' s remedial provision so complete relief can be granted. Plaintiffs argue that although they
cannot seek benefits due under the plan from the ADP Defendants under § 1132(a)(l), they can
seek equitable relief from the ADP Defendants under § 1132(a)(3), which provides that a
beneficiary may bring suit "(A) to enjoin any act or practice which violates any provision of this
subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress
such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan." In
some circumstances, parties who are not plan fiduciaries may be sued under§ 1132(a)(3). E.g.,
Harris Tr. & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S . 238, 241 (2000). The ADP
Defendants respond that a claim under§ 1132(a)(3) is available only when other adequate remedies
are not available. "[E]quitable relief will not normally be 'appropriate' if relief is available under
another subsection of Section 502(a) [codified at 29 U.S.C. § 1132(a)]." Pender v. Bank of Am.
Corp., 788 F.3d 354, 364 (4th Cir. 2015).
The Court at present cannot determine whether relief is available from Aetna under some
other ERISA subsection, because Plaintiffs have not yet filed a complaint alleging any ERISA
violations. Instead, Plaintiffs should be permitted to present ERISA claims against the ADP
Defendants before the Court determines whether the adequacy of those claims.
therefore amends its order of July 24, 2017 to permit Plaintiffs to assert ERISA claims against the
ADP Defendants in an amended complaint.
If those ERISA claims are improper, the ADP
Defendants may respond by moving to dismiss. Further, the Court resets the period for filing an
amended complaint to 21 days from the date of this order. The state-law claims against the ADP
Defendants asserted in the original complaint remain dismissed with prejudice.
For the foregoing reasons, the Court GRANTS IN PART AND DENIES IN PART
Plaintiffs ' motion to reconsider (Dkt. No. 12). The Court AMENDS its order of July 24, 2017
(Dkt. No . 10) to permit Plaintiffs to file an amended complaint asserting ERISA claims against all
Defendants including the ADP Defendants by September 5, 2017.
AND IT IS SO ORDERED.
Richard Mark Gerge
United States District Court Judge
August J_!L, 2017
Charleston, South Carolina
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