Lindsay v. Logan Oil Tools, Inc.
MEMORANDUM OPINION AND ORDER DENYING 6 MOTION to Remand, GRANTING MOTION for leave to amend complaint, DENYING AS MOOT 2 MOTION to Dismiss Plaintiff's Original Complaint. (Signed by Judge Gray H Miller) Parties notified.(rkonieczny, 4)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
LOGAN OIL TOOLS, INC.,
CIVIL ACTION H-16-3010
MEMORANDUM OPINION AND ORDER
Pending before the court is a motion to remand filed by plaintiff Kenneth Lindsay. Dkt 6.
After considering the motion, response, and applicable law, the court is of the opinion that the motion
to remand should be DENIED. Additionally, the alternative motion to amend the original petition
contained within Lindsay’s motion to remand (see Dkt. 6) should be GRANTED, and the pending
motion to dismiss the original petition (Dkt. 2) should be DENIED AS MOOT.
Lindsay was employed by defendant Logan Oil Tools, Inc. (“Logan Oil”) on February 1, 2015,
when his wife, Linda Lindsay died. Dkt. 7-1 (original state court petition). Lindsay thought that he
had a voluntary life and accidental death and dismemberment insurance policy through his employer.
See id. However, when he submitted a claim to the insurer, Unum Life Insurance Company of
America (“Unum”), Unum denied the claim due to lack of coverage. Id. According to Lindsay, two
individuals who worked in Human Resources for Logan Oil were “unfit, incompetent, and/or
negligent” and failed to timely renew the policy. Id. Lindsay contends that Logan Oil breached its
fiduciary duty and also did not use ordinary care in hiring, training, supervising, or retaining the
individuals who were entrusted to timely renew the policy. Id.
On August 24, 2016, Lindsay filed a petition against Logan Oil in the 127th Judicial District
Court in Harris County, Texas, asserting claims of negligence, breach of fiduciary duty, and negligent
hiring, training, supervision, and entrustment. Dkt. 1-1 (original petition). Logan Oil removed the
claim to this court on October 7, 2016, claiming that Lindsay’s state-law claims are completely
preempted by Employee Retirement Income Security Act of 1974 (“ERISA”). Dkt. 1. Lindsay now
moves to remand, arguing that his claims are not governed by ERISA. Dkt. 6.
II. LEGAL STANDARD
Federal courts are courts of limited jurisdiction and must have statutory or constitutional
power to adjudicate a claim. Home Builders Ass'n of Miss., Inc. v. City of Madison, Miss., 143 F.3d
1006, 1010 (5th Cir.1998). A federal court has subject matter jurisdiction over civil cases “arising
under the Constitution, laws, or treaties of the United States,” or over civil cases involving diversity
and an amount in controversy exceeding $75,000. 28 U.S.C. §§ 1331, 1332. “The presence or
absence of federal-question jurisdiction is governed by the ‘well-pleaded complaint rule,’ which
provides that federal jurisdiction exists only when a federal question is presented on the face of the
plaintiff's properly pleaded complaint.” Caterpillar v. Williams, 482 U.S. 386, 392, 107 S. Ct. 2425
(1987). Removal of civil actions is governed by 28 U.S.C. § 1441. “[A]ny civil action brought in
State court of which the district courts of the United States have original jurisdiction, may be removed
by the defendant or the defendants, to the district court . . . .” Id. at § 1441(a). A defendant seeking
removal bears the burden of proving federal jurisdiction exists. De Aguilar v. Boeing Co., 47 F.3d
1404, 1408 (5th Cir.1995). Because the effect of removal is to deprive the state court of an action
properly before it, the removal statute is to be strictly construed, and any doubt about the propriety
of removal must be resolved in favor of remand. Gasch v. Hartford Accident & Indem. Co., 491 F.3d
278, 281–82 (5th Cir.2007).
Logan Oil removed this case under federal question jurisdiction. Such jurisdiction is most
often invoked by plaintiffs pleading a cause of action created by federal law. Grable & Sons Metal
Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 312, 125 S.Ct. 2363, 162 L.Ed.2d 257 (2005).
However, federal question jurisdiction may also “lie over some state-law claims that implicate
significant federal issues.” Id. Such claims are “recognized under state law [but] turn on questions
of federal law, and thus justify resort to the experience, solicitude, and hope of uniformity that a
federal forum offers on federal issues.” Id. In these cases, “the question is whether the state-law
claim necessarily stated a federal issue, actually disputed and substantial, which a federal forum may
entertain without disturbing a congressionally approved balance of federal and state judicial
responsibilities.” Id. at 314.
A defendant cannot remove a case based solely on its preemption defense. See Caterpillar,
481 U.S. at 393 (interpreting the federal removal statute). This is because the removal statute permits
removal “only where original federal jurisdiction exists.” Id. However, “[o]nce an area of state law
has been completely pre-empted, any claim purportedly based on that pre-empted state law is
considered, from its inception, a federal claim [that] therefore arises under federal law.” Id.
(emphasis added). The Supreme Court has only found complete preemption in three areas: the usury
provisions of the National Bank Act (“NBA”); ERISA; and the Labor Management Relations Act
(“LMRA”). Vasquez v. Wells Fargo Bank, N.A., No. H–11–4086, 2013 U.S. Dist. LEXIS 6208, at
*15 (S.D.Tex. Jan. 8, 2013) (Harmon, J.) (citing Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 8–11,
123 S.Ct. 2058 (2003); Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 65–66, 107 S.Ct. 1542 (1987);
Avco Corp. v. Aero Lodge No. 735, Int'l Ass'n of Machinists & Aerospace Workers, 390 U.S. 557,
560, 88 S.Ct. 1235 (1968)). “These statutes are distinctive because they ‘provid the exclusive cause
of action for the claim asserted and also set forth procedures and remedies governing that cause of
action.’ “ Id. (quoting Beneficial Nat'l Bank, 539 U.S. at 15.). Aside from complete preemption, a
defense of preemption does not support removal to federal court “even if the defense is anticipated
in the plaintiff's complaint, and even if both parties concede that the federal defense is the only
question truly at issue.” Caterpillar, 482 U.S. at 393.
Here, the parties agree that Lindsay’s state-law claims are completely preempted if they are
governed by ERISA, but they disagree as to whether the policy at issue is an ERISA plan. See Dkt. 6;
Dkt. 10. ERISA defines an “employee welfare benefit plan” as:
any plan, fund, or program which was ... established or maintained by
an employer ... to the extent that such plan, fund, or program was
established or is maintained for the purpose of providing for its
participants or their beneficiaries, through the purchase of insurance
or otherwise, (A) medical, surgical, or hospital care or benefits, or
benefits in the event of sickness, accident, disability, death or
unemployment . . . .
29 U.S.C. § 1002(1). “To be an ERISA plan, the arrangement must be (1) a plan, (2) not excluded
from ERISA coverage by the safe-harbor provisions established by the Department of Labor, and
(3) established or maintained by the employer with the intent to benefit employees.” Shearer v. Sw.
Serv. Life Ins. Co., 516 F.3d 276, 279 (5th Cir. 2008).
The only argument Lindsay asserts in his motion to remand is that the plan at issue is excluded
from ERISA by the safe harbor provision contained in 29 C.F.R. § 2510.3–1(j)(1)–(4) (1992). Dkt. 6
at 4. Under 29 C.F.R. § 2510.3–1(j)(1)–(4),
the terms “employee welfare benefit plan” and “welfare plan” shall not
include a group or group-type insurance program offered by an insurer
to employees or members of an employee organization, under which
(1) No contributions are made by an employer or employee
(2) Participation the program is completely voluntary for employees
(3) The sole functions of the employer or employee organization with
respect to the program are, without endorsing the program, to permit
the insurer to publicize the program to employees or members, to
collect premiums through payroll deductions or dues checkoffs and to
remit them to the insurer; and
(4) The employer or employee organization receives no consideration
in the form of cash or otherwise in connection with the program, other
than reasonable compensation, excluding any profit, for administrative
services actually rendered in connection with payroll deductions or
Lindsay contends that the safe harbor applies because Logan Oil never paid premiums for the
plan and participation in the plan was completely voluntary. Dkt. 6. Lindsay asserts that Logan Oil’s
role was limited to collecting premiums and remitting them to the insurer and that Logan Oil received
no profits from the plan. Id. Logan Oil responds that all four prongs must be met to fall within the
safe harbor, and the first and third prongs fail in this case because Logan Oil contributed to the plan
and because Logan Oil did more than just collect premiums and remit them to the insurer. Dkt. 10.
The court agrees with Logan Oil. Logan Oil provides evidence from its employee benefits
handbook that Logan Oil provided a basic life insurance policy for employees and that the employees
could also select life insurance for their families but must pay the full cost of this additional coverage.
Id. (citing Dkt. 10, Ex. A, Ex. 3 (indicating that Logan Oil “provides a mandatory Basic Life
Insurance” policy for the employee and that the employee “may also purchase” life insurance for his
or her family). The employee could only receive coverage for his or her family if they elected the
coverage provided by Logal Oil for the employee himself or herself. Id. (citing Dkt. 10, Ex. A (“Only
by accepting coverage funded by Logan under the Group Policy, could Lindsay purchase optional
insurance for his wife.”)). Thus, the additional coverage could not exist independently from the
coverage provided by the employer. Accordingly, Logan Oil did “contribute” to the plan, even though
the family insurance was optional and the expense completely paid by the employee, because the
family insurance plan would not even have been available to Lindsay without Logan Oil’s
contribution to the entire package. See Glass v. United of Omaha Life Ins., Inc., 33 F.3d 1341, 1345
(11th Cir. 1994) (“Elect life coverage was provided at discount rates only to participants of the Basic
plan. The Elect life feature is part and parcel of the whole group insurance plan and thus ERISA
governs it.”); Armstrong v. Columbia/HCA Healthcare Corp., 122 F. Supp. 2d 739, 743 (S.D. Tex.
2000) (“The Court declines to hold that each element of a benefits package must be viewed as a
microcosm. As such this dependant coverage cannot be severed from the remainder of the life
benefits package.”). The safe harbor does not apply.
Because the safe harbor does not apply, Lindsay’s motion to remand (Dkt. 6) is DENIED.
Lindsay asserts an alternative motion to amend his complaint. See Dkt. 6. The motion to amend is
GRANTED. Lindsay shall file his amended complaint within thirty (30) days of the date of this
order. Logan Oil’s currently pending motion to dismiss (Dkt. 2) is DENIED AS MOOT.
Signed at Houston, Texas on December 23, 2016.
Gray H. Miller
United States District Judge
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