Little Wound School v. American United Life Insurance Company

Filing 18

ORDER granting 4 Motion to Dismiss. Signed by Chief Judge Jeffrey L. Viken on 3/5/18. (SB)

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
WESTERN DIVISION

CIV. 17-5017-JLV

LITTLE WOUND SCHOOL,
Plaintiff,

ORDER

vs.
AMERICAN UNITED LIFE INSURANCE
COMPANY,
Defendant.

Plaintiff Little Wound School filed an action against defendant American
United Life Insurance Company in South Dakota state court. (Docket 1-2).
Defendant removed the case to this court and filed a motion to dismiss the
complaint. (Dockets 1 & 4). According to defendant, the Employee Retirement
Income Security Act (“ERISA”) preempts plaintiff’s claims and Rule 12(b)(6) of
the Federal Rules of Civil Procedure requires dismissal of the complaint for
failure to state a claim. (Docket 5); see Fed. R. Civ. P. 12(b)(6).
LEGAL STANDARD
Under Rule 12(b)(6), a plaintiff must plead “enough facts to state a claim
to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007). Two “working principles” underlie Rule 12(b)(6) analysis. See
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). First, courts are not required to
accept as true legal conclusions “couched as . . . factual allegation[s]” in the
complaint. See id. “[A] complaint must allege ‘more than labels and

conclusions, and a formulaic recitation of the elements of a cause of action will
not do.’ ” Torti v. Hoag, 868 F.3d 666, 671 (8th Cir. 2017) (quoting Twombly,
550 U.S. at 555). The court does, however, “take the plaintiff’s factual
allegations as true.” Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th
Cir. 2009). Second, the plausibility standard is a “context-specific task that
requires the reviewing court to draw on its judicial experience and common
sense.” Iqbal, 556 U.S. at 678 (citation omitted). The complaint is analyzed “as
a whole, not parsed piece by piece to determine whether each allegation, in
isolation, is plausible.” Braden, 588 F.3d at 594.
FACTS
Plaintiff is an educational facility charted by the Oglala Sioux Tribe, and
its grades range from kindergarten to twelfth grade. (Docket 1-2 at p. 2). In
2010, plaintiff entered into an agreement with defendant on a 401(k) plan for
plaintiff’s employees. Id. at p. 3. The 2010 plan (also referred to as “the plan”)
marked a transition from the benefits plaintiff provided its employees in the
1990s. Id.
After relying on correspondence with defendant about the plan’s
contents, plaintiff formed mistaken beliefs on how the plan would operate,
including “the exclusion of certain classifications of employees[.]” Id. Plaintiff
asserts part the ‘90s plan included “employees designat[ing] a specific dollar
amount to be contributed to the Plan[,]” so the 2010 plan’s “exclusion of
certain classes of employees would have had the same effect as excluding
specific types of compensation because contract employees receiving the other
2

types of compensation were deferring stated dollar amounts.” Id. at pp. 3-4.
“[O]perational failure” followed, as plaintiff alleges:
The operational failure is the failure to include certain
compensation in the calculation of plan participant elective
deferrals, resulting in missed elective deferrals, employer matching
contributions and earnings. This operational failure resulted from
a discrepancy between the Plan document’s language and the
intent of Little Wound and the communications to participants as
to the definition of “compensation” and the scope of participant
earnings that were subject to the right [to] defer earnings into the
Plan.
Id. at p. 4.
According to plaintiff, defendant made false representations. Specifically,
that defendant “could efficiently sponsor and design” the plan; “that it was fully
familiar with efficiently running these types of plans and could responsibly
handle all functions necessary to establish a successful and fiscally responsible
plan[;]” “that it was familiar with the scope of benefits that should be provided”
to plaintiff’s employees; and “that the Plan would be appropriately designed to
ensure the best interests” of plaintiff’s employees. Id.
Plaintiff enlisted the help of the Employee Plans Compliance Resolution
System, which uses the Voluntary Compliance Program (“VCP”) in these
situations. Id. Plaintiff made a “corrective contribution” to the plan totaling
$137,935.33 based on employees’ missed deferral opportunities. Id. at p. 5.
Plaintiff incurred a fee through the VCP and attorney fees by addressing the
plan’s problems. Id.
The complaint advances three claims: fraud, negligent misrepresentation
and negligence. Id. at pp. 5-9. They largely relate to the “false representations”
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set forth above. See supra at p. 3; (Docket 1-2 at pp. 5-9). Plaintiff seeks
damages based on its corrective contribution, VCP fee, attorney fees and
punitive damages. (Docket 1-2 at pp. 10-11).
DISCUSSION
Defendant argues ERISA preempts plaintiff’s claims. (Docket 4). “ERISA
. . . is a comprehensive statute that sets certain uniform standards and
requirements for employee benefit plans.” Minnesota Chapter of Associated
Builders & Contractors, Inc. v. Minnesota Dep’t of Pub. Safety, 267 F.3d 807,
810 (8th Cir. 2001) (internal quotation marks omitted). “Congress’ primary
concern was with the mismanagement of funds accumulated to finance
employee benefits and the failure to pay employees benefits from accumulated
funds. To that end, it established extensive reporting, disclosure, and fiduciary
duty requirements to insure against the possibility that the employee’s
expectation of the benefit would be defeated through poor management by the
plan administrator.” Massachusetts v. Morash, 490 U.S. 107, 115 (1989)
(internal citation and footnote omitted). Plaintiff does not dispute the 401(k)
plan at issue in this case is an ERISA plan. (Docket 17 at p.1); see Johnston v.
Paul Revere Life Ins. Co., 241 F.3d 623, 629 (8th Cir. 2001) (“As a preliminary
matter, we must determine if the . . . policy at issue was a plan within the
meaning of ERISA because the existence of a plan is a prerequisite to the
jurisdiction of ERISA.”) (internal quotation marks omitted).

4

ERISA includes a provision on preemption. 29 U.S.C. § 1144(a). The
provision reads:
Except as provided in subsection (b) of this section, the provisions
of this subchapter and subchapter III shall supersede any and all
State laws insofar as they may now or hereafter relate to any
employee benefit plan described in section 1003(a) of this title and
not exempt under section 1003(b) of this title.
Id. “The ERISA civil enforcement mechanism” found in § 502(a)1 has “such
extraordinary pre-emptive power that it converts an ordinary state common law
complaint into one stating a federal claim for purposes of the well-pleaded
complaint rule.” Aetna Health, Inc. v. Davila, 542 U.S. 200, 209 (2004)
(internal quotation marks omitted). Accordingly, the Davila Court stated
“causes of action within the scope of the civil enforcement provisions of
§ 502(a) are removable to federal court.” Id. (internal quotation marks omitted).
Defendant removed this case from state court, but the preemption issue
here arises in the context of defendant’s Rule 12(b)(6) motion to dismiss.
(Docket 5). Defendant asserts preemption mandates dismissal of plaintiff’s
claims. Id. At the beginning of its argument, defendant contends the doctrine
of “complete preemption” supports dismissing the complaint. Id. at pp. 3-4.
This is misplaced. Despite its name, complete preemption is a jurisdictional
rule that “any claim filed by a plan participant for the same relief provided
under ERISA’s civil enforcement provision, even a claim purportedly raising

1Under

§ 502(a)(1)(B), “[i]f a participant or beneficiary believes that
benefits promised to him under the terms of the plan are not provided, he can
bring suit seeking provision of those benefits. A participant or beneficiary can
also bring suit generically to ‘enforce his rights’ under the plan, or to clarify
any of his rights to future benefits.” Davila, 542 U.S. at 210 (quoting 29 U.S.C.
§ 1132(a)(1)(B), also referred to as § 502(a)(1)(B)).
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only a state-law cause of action, arises under federal law and is removable to
federal court.” Prudential Ins. Co. of Am. v. Nat’l Park Medical Ctr., Inc., 413
F.3d 897, 907 (8th Cir. 2005). The rule applies when a plaintiff challenges a
defendant’s removal from state to federal court. “[A]lthough complete
preemption . . . can be used to invoke federal question jurisdiction, Defendants
cannot use [it] as a ground for dismissing Plaintiff’s claims under Federal Rule
of Civil Procedure 12(b)(6).” Summit Estate, Inc. v. Cigna Healthcare of Cal.,
Inc., Case No. 17-CV-03871, 2017 WL 4517111, at *13 (N.D. Cal. Oct. 10,
2017); see Clark v. Ameritas Inv. Corp., 408 F. Supp. 2d 819, 826 (D. Neb.
2005) (“[C]omplete preemption has jurisdictional consequences that distinguish
it from preemption asserted only as a defense.”); BH Servs. Inc. v. FCE Benefit
Admins. Inc., 5:16-CV-05045, 2017 WL 4325786, at *6-7 (D.S.D. Sept. 27,
2017) (explaining the jurisdictional nature of complete preemption).
The question in this case is whether plaintiff’s state law causes of action
“relate to” an employee benefit plan within the meaning of § 1144(a). In
analyzing the meaning of “relate to,” the United States Court of Appeals for the
Eighth Circuit held “any claim that [1] has a connection with or [2] references
an ERISA plan is preempted by ERISA.” Ibson v. United Healthcare Servs.,
Inc., 877 F.3d 384, 391 (8th Cir. 2017) (internal quotation marks and some
alterations omitted). These are two distinct inquiries.
Under the “reference” test, ERISA preempts a state law “when that law
(1) imposes requirements by reference to ERISA covered programs[,]
(2) specifically exempts ERISA plans from an otherwise generally applicable
6

statute[,] or (3) premises a cause of action on the existence of an ERISA plan[.]”
Prudential Ins. Co. of Am. v. Nat’l Park Medical Ctr., Inc., 154 F.3d 812, 822
(8th Cir. 1998) (internal citations, alterations and quotation marks omitted). In
a more recent decision, the Eighth Circuit held: “We have also stated a claim
relates to an ERISA plan when it ‘premises a cause of action on the existence of
an ERISA plan.’ ” Estes v. Federal Express Corp., 417 F.3d 870, 872 (8th Cir.
2005) (quoting Prudential, 154 F.3d at 822).2
Plaintiff’s state common law claims involve no impermissible “reference
to” ERISA plans because they do not “act[ ] immediately and exclusively upon
ERISA plans[, and] the existence of ERISA plans is [not] essential to the law’s
operation[.]” California Div. of Labor Standards Enf’t v. Dillingham Const.,
N.A., Inc., 519 U.S. 316, 325 (1997). Instead, plaintiff relies on state laws “of
general application” that “do[ ] not actually or implicitly refer to ERISA plans.”
Wilson v. Zoellner, 114 F.3d 713, 717 (8th Cir. 1997) (discussing the Missouri
common law claim of negligent misrepresentation). The elements of plaintiff’s
fraud, negligent misrepresentation and negligence claims make “no reference to
and function[ ] irrespective of the existence of an ERISA plan.” Id. (internal
quotation marks omitted); see also Johnson v. Weber, 898 N.W.2d 718, 729
(S.D. 2017) (stating the elements of fraud); Total Auctions & Real Estate, LLC v.
S.D. Dept. of Revenue & Regulation, 888 N.W.2d 577, 581 n.4 (S.D. 2016)

2It

is important to highlight that the portion of Prudential that Estes
quotes is within a discussion of the “reference” test and not the “connection”
test. See Prudential, 154 F.3d at 822 (titling the section of analysis “2.
‘Reference to’ ERISA in the Arkansas PPA”). 
7

(negligent misrepresentation); State Auto Ins. Cos. v. B.N.C., 702 N.W.2d 379,
386 (S.D. 2005) (negligence).
The central issue is whether ERISA preempts plaintiff’s claims based on
their “connection” to the plan. When conducting this inquiry, the United
States Supreme Court considers “the objectives of the ERISA statute as a guide
to the scope of the state law that Congress understood would survive, and the
nature of the effect of the state law on ERISA plans[.]” Gobeille v. Liberty Mut.
Ins. Co., 136 S. Ct. 936, 943 (2016) (internal citation and quotation marks
omitted). “A State law has an impermissible connection with ERISA plans
where it governs . . . a central matter of plan administration or interferes with
nationally uniform plan administration.” Pharm. Care Mgmt. Assoc. v.
Gerhart, 852 F.3d 722, 730 (8th Cir. 2017) (internal quotation marks omitted).
Plan administration includes “determining the eligibility of claimants,
calculation benefit levels, making disbursements, monitoring the availability of
funds for benefit payments, and keeping appropriate records in order to comply
with applicable reporting requirements.” Fort Halifax Packing Co., Inc. v.
Coyne, 482 U.S. 1, 9 (1987). Because the “most efficient way to meet these
responsibilities is to establish a uniform administrative scheme,” id., “[w]here a
State’s law creates the prospect that a plan’s administrative scheme will be
subject to conflicting requirements, ERISA’s preemption provision is enforced.”
Gerhart, 852 F.3d at 730.
The Eighth Circuit “ ‘relie[s] on a variety of factors to determine’ whether
a ‘state [law] of general application’ . . . is preempted because it ‘relates to’ an
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ERISA plan.” Munro-Kienstra v. Carpenters’ Health & Welfare Trust Fund of
St. Louis, 790 F.3d 799, 803 (8th Cir. 2015) (quoting Ark. Blue Cross & Blue
Shield v. St. Mary’s Hosp., Inc.,3 947 F.2d 1341, 1344 (8th Cir. 1991)). The St.
Mary’s court established seven factors:
1. Whether the state law negates an ERISA plan provision;
2. Whether the state law affects relations between primary ERISA
entities;
3. Whether the state law impacts the structure of ERISA plans;
4. Whether the state law impacts the administration of ERISA
plans;
5. Whether the state law has an economic impact on ERISA plans;
6. Whether preemption of the state law is consistent with other
ERISA provisions; and
7. Whether the state law is an exercise of traditional state power.
St. Mary’s, 947 F.2d at 1344-45; see Munro-Kienstra, 790 F.3d at 803-04
(applying the St. Mary’s factors); BH Servs., 2017 WL 4325786, at *8-12
(same). The court addresses each factor in turn.
One: negate a provision
The parties failed to include the plan as part of the record. Plaintiff’s
complaint references it repeatedly, as do the motions regarding dismissal.
(Dockets 1-2, 5, 16 & 17). Without the plan available to examine, the court
finds it is unable to weigh this factor. See BH Servs., 2017 WL 4325786, at *8
(analyzing specific plan provisions).

3The

court refers to this case as St. Mary’s.
9

Two and three: affect relations and impact structure
The Eighth Circuit “treat[s] the second and third preemption factors as
identical.” In Home Health, Inc. v. Prudential Ins. Co. of Am., 101 F.3d 600,
605 (8th Cir. 1996). “Primary ERISA entities are ‘the employer, the plan, the
plan fiduciaries, and the beneficiaries.’ ” Thrailkill v. Amsted Indus. Inc., 102
F. Supp. 2d 1129, 1134 (W.D. Mo. 2000) (quoting St. Mary’s, 947 F.2d at
1346). Plaintiff is the employer and defendant is the fiduciary. (Docket 16 at
p. 9) (conceding this point in plaintiff’s response brief); (Docket 1-2). This
case—and recovery plaintiff may receive—affects relations between primary
ERISA entities. See St. Mary’s, 947 F.2d at 1346. Consequently, plaintiff’s
claims also impact the plan’s structure. Throughout plaintiff’s three causes of
action, it targets defendant’s alleged failure to disclose certain information
regarding the plan and to carry out specific procedures with the plan. (Docket
1-2 at pp. 5-9). Plaintiff’s recovery on its claims would cause a “change in plan
structure and in the relationship between primary ERISA entities [that] is not a
‘tenuous’ impact on the plan.” St. Mary’s, 947 F.2d at 1346. Factors two and
three weigh in favor of preemption. See id.; BH Servs., 2017 WL 4325786, at
*8-9.
Four: impact administration
This factor supported preemption in Shea v. Esensten, 107 F.3d 625,
627 (8th Cir. 1997). The Eighth Circuit held: “The outcome of Mrs. Shea’s
lawsuit would clearly affect how Seagate’s ERISA-regulated benefit plan is
administered, and if similar cases are brought in state courts across the
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country, ERISA plan administrators will inevitably be forced to tailor their plan
disclosures to meet each state’s unique requirements.” Accordingly, the Shea
court found that “result would be at odds with Congress’s intent to ensure ‘the
nationally uniform administration of employee benefit plans.’ ” Id. (quoting
New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins.
Co., 514 U.S. 645, 657 (1995)); see Munro-Kienstra, 790 F.3d at 803 (finding
an “impact [on] the administration of ERISA plans” based on the risk of
creating non-uniform standards across the country). Plaintiff relies on Wilson,
114 F.3d at 719, to argue this factor cuts against preemption. The court finds
this case is closer to Shea and Munro-Kienstra than Wilson.
Plaintiff’s lawsuit argues defendant failed to make sufficient disclosures
and execute certain plan procedures. As in Shea, the result in this case “would
clearly affect how [an] ERISA-regulated benefit plan is administered[.]” Shea,
107 F.3d at 627. Allowing plaintiff’s state law claims to proceed may impose
additional disclosure requirements on defendant, “and if similar cases are
brought in state courts across the country, ERISA plan administrators will
inevitably be forced to tailor their plan disclosures to meet each state’s unique
requirements.” Id.
Turning to plaintiff’s argument on Wilson, that case involved a
misrepresentation claim against an insurance salesman. Wilson, 114 F.3d at
719. The plaintiff suffered an injury on the job, was denied coverage, lost a
claim against the insurance company and asserted the salesmen misled him

11

about coverage. Id. The Eighth Circuit determined recovery based on the
salesman’s “pre-plan tortious conduct” did not impact plan administration. Id.
Plaintiff’s allegations in this case focus on defendant’s conduct
surrounding the formation of the plan and the subsequent plan
implementation. (Docket 1-2 at pp. 4-9). Because of this alleged misconduct,
plaintiff pursues damages based on the benefits it believed its employees would
receive under the plan. Id. In Shea, “Medica administered Seagate’s employee
benefit plan, and Mrs. Shea maintain[ed] Medica wrongfully failed to disclose a
major limitation on her husband’s health care benefits.” Shea, 107 F.3d at
627. On that point, the Eighth Circuit stated, “we have held that claims of
misconduct against the administrator of an employer’s health plan fall
comfortably within ERISA’s broad preemption provision.” Id. Plaintiff is
correct that part of its claims touch pre-plan conduct. (Docket 1-2 at p. 4)
(alleging false representations made before administering the plan). But a
proper view of the complaint that appreciates its context reveals its claims
encompass pre-plan conduct, actions during plan formation and the following
administration of the plan.
Unlike the purely “pre-plan tortious conduct” in Wilson, 114 F.3d at 719,
the scheme of actions set out in the complaint parallels those that “fall
comfortably within ERISA’s broad preemption provision.” Shea, 107 F.3d at
627; see Keokuk Area Hosp., Inc. v. Two Rivers ins. Co., 228 F. Supp. 3d 892,
897-98 (S.D. Iowa 2017) (finding preemption and holding that “[a]lthough the
Hospital is not suing to recover improperly withheld benefits, its suit
12

nonetheless concerns an alleged failure to properly administer the Plan.”);
Estate of Disabato v. Nat’l Automatic Sprinkler Indust. Welfare Fund, No. 4:15CV-828, 2016 WL 1182637, at *2-3 (E.D. Mo. Mar. 28, 2016). This factor
weighs in favor of preemption.
Five and six: economic impact and consistency
“In situations . . . where the requested relief under state law would
require defendants to repay the Plan, the Eighth Circuit has concluded that the
fifth factor is implicated and weighs in favor of preemption.” BH Servs., 2017
WL 4325786, at *10. But a “tenuous, remote, and peripheral economic impact
on ERISA plans” does not support preemption of state law. St. Mary’s, 947
F.2d at 1348 (internal quotation marks omitted).
The parties offer little to no specific argument on this factor. Because
the record and parties’ briefing sheds no light on the economic impact of
plaintiff’s state law claims regarding the plan, this factor does not weigh in
favor of preemption.
“[W]here no portion of ERISA is consistent or inconsistent with the state
law at issue, the sixth factor is not implicated.” BH Servs., 2017 WL 4325786,
at *10 (citing Wilson, 114 F.3d at 719). Like the fifth factor, analysis of the
sixth factor is absent from the parties’ submissions. The sixth factor is neutral
on preemption.
Seven: traditional state power
“[T]his factor arguably is a policy consideration useful in deciding
borderline questions of ERISA preemption.” St. Mary’s, 947 F.2d at 1350. The
13

analysis above establishes that this is not a borderline case and the factors
generally weigh in favor of preemption. “Since this case does not present a
borderline ERISA preemption question, it is not necessary to discuss policy
considerations in this context.” Boyle v. Anderson, 68 F.3d 1093, 1110, n.7
(8th Cir. 1995).
After analyzing the St. Mary’s factors, the court finds ERISA preempts
plaintiff’s state law causes of action. Plaintiff’s claims “relate to” the plan in
this case, 29 U.S.C. § 1144(a), because they have “a connection with” an ERISA
plan. Ibson, 877 F.3d at 391.
ORDER
Based on the above analysis, it is
ORDERED that defendant’s motion to dismiss (Docket 4) is granted.
IT IS FURTHER ORDERED that plaintiff’s complaint (Docket 1-2) is
dismissed without prejudice.4
Dated March 5, 2018.
BY THE COURT:
/s/ Jeffrey L. Viken
JEFFREY L. VIKEN
CHIEF JUDGE

4“Because

it is unclear how Plaintiff's complaint would be amended to
state a claim for relief under ERISA, the Court will grant Defendants’ motion to
dismiss and dismiss this action without prejudice.” Disabato, 2016 WL
1182637, at *3 (emphasis added).
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