Kersh et al v. United Healthcare Insurance Corporation, et al
Filing
33
ORDER GRANTING IN PART AND DENYING IN PART 5 Motion to Dismiss for Failure to State a Claim; DENYING 6 Motion to Strike Jury Trial Demand. Signed by Judge David Ezra. (rg)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
DEBRA LYNN KERSH,
INDIVIDUALLY AND ON BEHALF
OF THE ESTATE OF JAMES R.
KERSH,
Plaintiff,
vs.
UNITEDHEALTHCARE
INSURANCE COMPANY, a
Connecticut corporation; PAYCHEX,
INC., a Delaware Corporation; and
DENNIS WALKER, an individual,
Defendants.
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Cv. No. SA:13-CV-00052-DAE
ORDER: (1) GRANTING IN PART AND DENYING IN PART DEFENDANT
PAYCHEX’S MOTION TO DISMISS; (2) DENYING DEFENDANT
PAYCHEX’S MOTION TO STRIKE JURY TRIAL DEMAND
On May 3, 2013, the Court heard oral argument on the Motion to
Dismiss filed by Defendant Paychex, Inc., and joined by Defendants
UnitedHealthcare Insurance Company and Dennis Walker (collectively,
“Defendants”). (Doc. # 5.) Lawrence Smith, Esq., Michael Diksa, Esq., and
Michael Klein, Esq., appeared on behalf of Defendants. Lon Packard, Esq., and
Michael Packard, Esq., appeared on behalf of Plaintiff Debra Lynn Kersh. Also
before the Court is Defendant Paychex’s Motion to Strike Jury Trial Demand.
(Doc. # 6.) After considering the memoranda in support of and in opposition to the
1
Motions, and in light of the parties’ arguments at the hearing, the Court, for the
reasons that follow, GRANTS IN PART AND DENIES IN PART Paychex’s
Motion to Dismiss (doc. # 5) and DENIES Paychex’s Motion to Strike Jury Trial
Demand (doc. # 6).
BACKGROUND
Plaintiff Debbie Kersh (“Plaintiff”) is the widow of Randy Kersh
(“Mr. Kersh”). Mr. Kersh received a formal employment proposal from Salto
Systems, Inc. (“Salto”) on July 6, 2011. (Compl. ¶ 14; id. Ex. A.) The proposal
outlined the job duties and compensation package, which included a fringe benefits
plan, stating: “Life Insurance is optional. Not covered by Salto.” (Id.) Mr. Kersh
accepted the offer and began working for Salto on July 18, 2011. (Compl. ¶ 15.)
On the same day, Mr. Kersh began working with Linda Leimbach (“Leimbach”),
Salto’s Director of Human Resources, on various health benefits issues. (Id. ¶ 16.)
Defendant Paychex, Inc. (“Paychex”) is a payroll and human
resources company that manages Salto’s employee benefits, and it is also a broker
for Defendant UnitedHealthcare (“UHC”). Defendant Dennis Walker (“Walker”)
was Salto’s contact person at Paychex, and he answered Mr. Kersh’s questions
about benefits as they were relayed to him through Leimbach. (Id. ¶ 16; id. Ex. C.)
After Mr. Kersh’s questions about health benefits were resolved, he
began inquiring about purchasing life insurance through Paychex. (Id. ¶ 18.) By
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email dated July 26, 2011, sent to Walker and Nicole Baldo (another Paychex
employee), Leimbach asked if life or disability coverage was available for Salto
employees. (Id. ¶ 18; id. Ex. C.) On July 27, 2011, Walker responded to
Leimbach that Salto did not offer disability benefits. (Id. Ex. C.) By email dated
August 1, 2011, Leimbach requested “information on life insurance cost.” (Id.) In
his email response dated August 2, 2011, at 11:29 a.m., Walker wrote that the life
insurance premium was $4.95 and that “[n]ew members should fax their
enrollment forms to (585) 249-4029. Those go directly to our enrollment team
here at Paychex.” (Id.) Leimbach responded at 12:50 p.m., asking, “[I]s that
$4.95 per thousand coverage, or how does that work?” (Id.) Walker responded,
“That is monthly.” (Id.) Minutes later, Leimbach wrote Walker again, saying,
“Sorry, Dennis, I am missing something here—monthly for how much coverage?”
(Id.) Walker responded at 2:08 p.m., attaching a copy of the Salto Plan renewal,
which stated the terms of the life insurance policy Salto offered through UHC.
(Id.) His email said: “On page 9 of the attached 5/1 renewal you can see that your
group offers $15,000 in total benefit. The cost per month comes out to $4.95
because you multiply the sum of 0.04 and 0.29 (0.33) times 15 to get the
premium.” (Id. (emphasis added).)
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Plaintiff states that “all” of the August 2 emails, which she attaches to
the Complaint, were forwarded to Mr. Kersh. (Compl. ¶ 19; doc. # 20
(“Resp.”) ¶ 6.) At 3:18 p.m., Leimbach wrote an email to Mr. Kersh that said:
Hi Randy,
The life insurance offered by Salto via Paychex costs $4.95 per month for
$15,000 payout, [sic] if you are interested let me know.
The completed health insurance enrollment should be faxed to (585)
249-4029.
Let me know if you need anything else.
Linda
(Compl. Ex. C.)
A few days after this exchange, on August 8, 2011, Leimbach emailed
Walker once more, saying: “Hi Dennis, appreciate you sending this over, I will
review sometime this week or next. Is there a special form for signing up for the
life insurance, and to confirm, is it $4.95 per $15K per pay period? Thanks!” (Id.)
Later that day, Walker responded, “The $4.95 premium is per month.” (Id.)
Plaintiff alleges that she and Mr. Kersh, to whom Leimbach forwarded this email,
understood Walker to be clarifying that the premium was, indeed, $4.95 per
$15,000 in coverage, but that it was to be paid per month rather than per pay
period. (Compl. ¶ 20; Resp. ¶ 6.) A few minutes later, Leimbach asked Walker to
email her his number so that she could call him. (Compl. Ex. C.)
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Believing that they could purchase life insurance in $15,000
increments at a rate of $4.95 per $15,000 in coverage, Plaintiff and Mr. Kersh
calculated by hand that they could obtain $750,000 in coverage for $247.50 per
month. (See Compl. Ex. C.)
On August 18, 2011, Plaintiff and Mr. Kersh jointly completed an
Employee Enrollment Form (“EE Form”), “which was on UHC letterhead.”
(Compl. ¶ 21; id. Ex. B.) Plaintiff and Mr. Kersh signed the EE Form and dated it
July 18, 2011.1 (Compl. Ex. B.) Section C, entitled “Product Selection,” contained
the following directions:
Please check the box for each coverage you or your dependents are enrolling
in. If your employer offers a choice of plans, indicate which plan you are
selecting. Indicate the dollar amount selected for the Life and Accidental
Death & Dismemberment (AD&D), Supplemental Life, Short-Term
Disability (STD), and Long-Term Disability (LTD) Plans. Benefit offerings
are dependent upon employer selection.
(Id. (emphases added).) Plaintiff and Mr. Kersh “checked the box indicating that
they wanted Basic Life Insurance and hand-wrote $750,000 in the line where they
were to indicate the dollar amount.” (Compl. ¶ 21.) Mr. Kersh also placed
question marks in the blocks for supplemental life insurance, short-term disability,
and long-term disability insurance, and he sent a note asking for quotes on those
offerings. (Compl. Ex. B.) Apparently by accident, Mr. Kersh did not list his
1
Plaintiff and Mr. Kersh wrote “7/18/11,” which may have been an accident, since
the Complaint says they filled the form out on August 18, 2011. July 18, 2011,
was Mr. Kersh’s hire date.
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wife’s social security number where the form requested that information. (See id.)
Plaintiffs faxed this form to Paychex on August 18, 2011, at 12:35 p.m. (Id.)
On 10:21 a.m. on August 22, 2011, Walker emailed Leimbach to say
that “James [Mr. Kersh] is all set, just need that social to get his spouse enrolled.”
(Compl. Ex. C.) At 10:43 a.m., Leimbach forwarded Walker’s email to Mr. Kersh,
instructing him to “please forward [his] wife’s social to Dennis [Walker] at [his]
earliest convenience[.]” (Id.) At some point that same day, Mr. Kersh passed
away. (Compl. ¶ 22.)
Mr. Kersh was on a direct-deposit system with Salto and received one
payment—on August 1, 2011, in the amount of $3.72—before he passed away.
(Compl. ¶ 22.) After Mr. Kersh’s death, Plaintiff received three additional
paystub-type direct-deposit documents, all of which indicated that deductions had
been made for Mr. Kersh’s benefit package. (Id. Ex. E.) However, the
abbreviations on the paystubs make it difficult to discern precisely what the
deductions were for.2
On November 21, 2011, Plaintiff submitted a request for benefits to
UHC requesting payment of the $750,000 in insurance proceeds. (Id. ¶ 23; Compl.
Ex. F.) The Claimant’s Statement portion of the claim form included a block for
2
The deductions are listed as follows: “PADENEEDEN: $21.11”;
“PAGTLEEGTL: $0.01”; “PAMEDEECMP: $134.77”; and “PAVISEEVIS:
$8.51.”
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the Group Policy Number; Plaintiff wrote “0724824.” (Compl. Ex. F.) Section 2
of the form, entitled “Employer’s Statement,” includes a section titled “Authorized
Official Must Sign Below.” (Id.) However, the lines for the name, address,
telephone number, and signature of the employer were left blank. (Id.)
By letter dated January 24, 2012 (“Claim Decision Letter”), UHC
approved benefits under Group Life Insurance Policy No. 0724824 for $15,014.00,
stating that that amount “represent[ed] the proceeds payable to [Plaintiff] under the
policy.” (Compl. ¶ 23; id. Ex. G.) The Claim Decision Letter also addressed
Plaintiff’s claim for $750,000, stating:
Included with the initial claim submission was a letter dated November 21,
2011, signed by you, requesting an additional benefit for supplemental life in
the amount of $750,000.00. Please note that Salto Systems does not have
any supplemental life with UnitedHealthcare Insurance Company that would
provide for that additional benefit referenced in your letter.
(Compl. Ex. G.) The letter informed Plaintiff that if she disagreed with the
insurer’s decision and wished to “appeal it, under the Employee Retirement
Income Security Act of 1974 (ERISA), [she was] entitled to a full and fair review
of the decision.” (Id.) The letter also informed Plaintiff that if her “claim [was]
not approved on review,” she could bring a civil action under section 502(a) of
ERISA. (Id.)
Through a letter from her counsel to UHC’s Appeals Department
(“Appeal Letter”), Plaintiff appealed UHC’s claims decision. (Compl. ¶ 24; id.
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Ex. H.) The Appeal Letter referenced policy number 0724824 and listed the
policyholder as Salto Systems, Inc. (Compl. Ex. H.) Plaintiff’s counsel explained
in the letter that Mr. Kersh “did not seek to purchase ‘supplemental life’ as
suggested in the [Claim Letter]. Rather he bought $750,000 in basic life insurance
and his widow is making a claim for that amount.” (Id. (footnote omitted).)
UHC affirmed its previous decision by a letter dated May 7, 2012
(“Appeal Denial Letter”). The letter stated that the only life insurance available to
employees of Salto, including Kersh, was the $15,000.00 benefit “financed by
Salto.” (Compl. ¶ 24, 28, 30.) The letter also stated:
In the course of our eligibility review, the attending life claims specialist
received from Paychex, Inc., a UnitedHealthcare enrollment form signed
July 18 2011 by both James and Debra Kersh. This document does not show
the $750,000 life insurance coverage election as indicated on the
otherwise-identical enrollment form you presented as “Exhibit B” in your
appeal request.
(Compl. ¶ 24; Resp. Ex. 2.) Plaintiff alleges that someone at Paychex altered the
form that Mr. Kersh faxed on August 18, 2011—removing Mr. Kersh’s
hand-written request for $750,000 in coverage—and then submitted the altered
version to UHC in order to avoid paying Plaintiff’s claim. (Compl. ¶ 33.)
On December 21, 2012, Plaintiff, individually and on behalf of Mr.
Kersh’s estate, filed suit against Defendants in the 225th Judicial Court of Bexar
County, Texas. (Doc. # 1-1 (“Compl.”).) The Complaint brought the following
causes of action:
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(1) breach of contract and wrongful denial of health insurance benefits
against UHC, based on allegations that UHC was responsible for the
misrepresentations made by Paychex and Walker regarding the
available coverage and that UHC used a fraudulently altered enrollment
registration form to deny the claim (Compl. ¶¶ 27–28);
(2) negligence against Paychex and Walker, alleging that both Defendants
“owed a duty to Plaintiffs to use reasonable diligence in procuring the
insurance [they sought]” but gave “incorrect and/or misleading
information upon which Plaintiffs reasonably relied,” causing them
harm (id. ¶ 29);
(3) negligent misrepresentation against Paychex and Walker, alleging that
Paychex and Walker “made representations in the course of the
business of Defendant Paychex . . . which contained false information
for the guidance of Plaintiffs in their business” and that “Plaintiffs
reasonably relied on these representations to their detriment” (id. ¶¶ 31–
32);
(4) Texas Insurance Code Violations against Paychex and Walker based on
their alleged misrepresentations before Plaintiffs submitted their
enrollment form as well as “the efforts by Defendant Paychex and
Defendant Walker to fraudulently alter the enrollment form” (id. ¶ 33);
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(5) violations of the Texas Deceptive Trade Practices Act (DTPA), Tex.
Bus. & Com. Code § 17.41 et seq., by Paychex and Walker (id. ¶¶ 34–
35); and
(6) intentional infliction of emotional distress by all Defendants, who
allegedly engaged in “extreme and outrageous conduct,” causing
Plaintiff Debbie Kersh to suffer severe emotional distress (id. ¶ 36).
Defendants timely removed the case to this Court on January 18,
2013, asserting that federal jurisdiction was proper pursuant to both
28 U.S.C. § 1331 and 28 U.S.C § 1332. (Doc. # 1.) Defendant Paychex filed a
Motion to Dismiss for Failure to State a Claim and a Motion to Strike Jury Trial
Demand on January 25, 2013. (Docs. ## 5, 6.) Those Motions are now before the
Court.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(b)(6) authorizes dismissal of a
complaint for “failure to state a claim upon which relief can be granted.” Review
is limited to the contents of the complaint and matters properly subject to judicial
notice. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007). In analyzing a motion to dismiss for failure to state a claim, “[t]he court
accepts ‘all well-pleaded facts as true, viewing them in the light most favorable to
the plaintiff.’” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir.
10
2007) (quoting Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d
464, 467 (5th Cir. 2004)). To survive a Rule 12(b)(6) motion to dismiss, the
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). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
A complaint need not include detailed facts to survive a Rule 12(b)(6)
motion to dismiss. See Twombly, 550 U.S. at 555–56. In providing grounds for
relief, however, a plaintiff must do more than recite the formulaic elements of a
cause of action. See id. at 556–57. “The tenet that a court must accept as true all
of the allegations contained in a complaint is inapplicable to legal conclusions,”
and courts “are not bound to accept as true a legal conclusion couched as a factual
allegation.” Iqbal, 556 U.S. at 678 (internal quotations and citations omitted).
Thus, although all reasonable inferences will be resolved in favor of the plaintiff,
the plaintiff must plead “specific facts, not mere conclusory allegations.”
Tuchman v. DSC Commc’ns Corp., 14 F.3d 1061, 1067 (5th Cir. 1994); see also
Plotkin v. IP Axess Inc., 407 F.3d 690, 696 (5th Cir. 2005) (“We do not accept as
true conclusory allegations, unwarranted factual inferences, or legal conclusions.”).
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When a complaint fails to adequately state a claim, such deficiency
should be “exposed at the point of minimum expenditure of time and money by the
parties and the court.” Twombly, 550 U.S. at 558 (citation omitted). However, the
plaintiff should generally be given at least one chance to amend the complaint
under Rule 15(a) before dismissing the action with prejudice. Great Plains Trust
Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002).
DISCUSSION
I.
Defendants’ Motion to Dismiss
Defendants argue that Plaintiff’s state-law claims all arise out of and
relate to a life insurance plan that was sponsored by Salto (the “Salto Plan”), which
the parties agree is an employee welfare benefit plan governed by the Employee
Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq. (Doc. # 5
(“MTD”) at 7.) Accordingly, insist Defendants, Plaintiff’s state-law claims “are
completely preempted by ERISA and must be dismissed.” (Id.) Defendants also
argue that Plaintiff’s state-law claims are subject to conflict preemption because
they “relate to” an ERISA plan. (Id. at 16–19.)
Plaintiff responds that ERISA does not preempt her claims because
(1) her claims stem from the life insurance policy for $750,000 that she and Mr.
Kersh believed they were purchasing (which Plaintiff insists may be distinguished
from the $15,000 Salto Plan); and (2) even if the $750,000 policy is “related to” an
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employee welfare benefit plan under ERISA, it falls within the scope of ERISA’s
safe-harbor Provision and is not preempted. (Resp. at 2, 9–17.)
To rule on Defendants’ Motion to Dismiss, therefore, the Court must
first determine whether Plaintiff’s state-law claims are preempted by ERISA. For
the reasons that follow, the Court concludes that Plaintiff’s claims against UHC are
preempted while her claims against the other Defendants are not.
A. The Salto Plan
There is no dispute that the Salto Plan, the terms of which are set forth
in the Salto Certificate (Compl. Ex. D), is an ERISA-governed employee welfare
benefit plan. (See Resp. at 8, 20.) The company’s endorsement of the plan is
reflected in, inter alia, the title of the Salto Certificate: “UNITED HEALTHCARE
INSURANCE COMPANY - LIFE INSURANCE - ACCIDENTAL DEATH,
DISMEMBERMENT OR LOSS OF USE INSURANCE - CERTIFICATE FOR
COVERAGE FOR SALTO SYSTEMS INC. - GROUP NUMBER: G/GA724824
BW - EFFECTIVE DATE: May 1, 2008.” (Id.) Under the section entitled
“Schedule of Benefits,” the Salto Certificate states that “[a]ll full-time Employees”
are eligible for $15,000 in life insurance benefits. (Id. at 2.) Beneath the box
containing the policy limit of $15,000, the Salto Certificate states that “the
Employee may not apply for amounts of Insurance which exceed the Employee’s
eligible Life Insurance Benefit Amount that is stated above.” (Id. (emphasis
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added).) The Certificate also contains a section entitled “Statement of Employee
ERISA Rights,” which explains, inter alia, that the covered employee has the right
to examine all Plan documents and the right to file suit in federal court to enforce
his or her rights under ERISA. (Id. at 16.)
B. ERISA Preemption
Defendants insist that Plaintiff’s state-law claims are preempted by
ERISA. There are two forms of ERISA preemption that may be applicable in this
case.
1. “Complete” Preemption
First, under “complete” preemption, any state cause of action that
seeks relief within the scope of ERISA’s civil enforcement section, § 502,
“regardless of how artfully pleaded as a state action,” is removable to federal court.
Giles v. NYLCare Health Plans, Inc., 172 F.3d 332, 337 (5th Cir. 1999); Met. Life
Ins. Co. v. Taylor, 481 U.S. 58, 66 (1987). Section § 502(a)(1) provides, in
relevant part, that a participant or beneficiary of an ERISA-regulated plan may
bring a civil action “to recover benefits due to him under the terms of his plan, to
enforce his rights under the terms of the plan, or to clarify his rights to future
benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B); see also
McGowin v. ManPower Int’l, Inc., 363 F.3d 556, 559 (5th Cir. 2004) (holding that
“complete preemption exists when a remedy falls within the scope of or is in direct
14
conflict with [ERISA’s civil enforcement section]”). If complete preemption
exists, a plaintiff’s state claims are subject to removal based on federal-question
jurisdiction,3 and ERISA offers the sole framework for relief. See Aetna Health
Inc. v. Davila, 542 U.S. 200, 209 (2004). In other words, a claim that is
completely preempted by ERISA is not automatically subject to dismissal; it is
subject to adjudication on its merits under the applicable provisions of ERISA.
In Aetna Health Inc. v. Davila, 542 U.S. 200 (2004), the Supreme
Court stated the following conjunctive standard for determining whether a claim is
completely preempted: A suit “falls ‘within the scope of’ ERISA § 502(a)(1)(B)
. . . if [the] individual, at some point in time, could have brought his claim under
ERISA § 502(a)(1)(B) and where there is no other independent legal duty that is
implicated by a defendant’s actions . . . .” Id. at 210 (emphasis added). The Court
explained, however, that ERISA need not strictly duplicate a state-law cause of
action in order for the state law to be preempted: “[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.” Id. at 209. In that case, the Supreme Court
concluded that the plaintiffs’ claims were completely preempted because they
3
Note that Plaintiff’s state-law claims need not be completely preempted in order
for this Court to have jurisdiction; the parties are diverse, giving rise to jurisdiction
under 28 U.S.C. § 1332. (See doc. # 1 ¶¶ 7–11.)
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“complain[ed] only about denials of coverage promised under the terms of
ERISA-regulated employee benefit plans.” Id. at 211.
2. “Conflict” Preemption
The second form of ERISA preemption, known as “conflict” or
“defensive” preemption, exists when a state-law claim falls outside of the scope
of § 502’s civil enforcement provision but still “relates to” an ERISA plan
under § 514. See 29 U.S.C. § 1144(a) (stating that ERISA provisions “shall
supersede any and all state laws insofar as they may now or hereafter relate to any
[ERISA] employee benefit plan . . . .”). A state-law cause of action that relates to
an ERISA plan is preempted “even if the action arises under general state law that
in and of itself has no impact on employee benefit plans.” Cefalu v. B.F. Goodrich
Co., 871 F.2d 1290, 1292 n.5 (5th Cir. 1989). “Rather than transmogrifying a state
cause of action into a federal one—as occurs with complete preemption—conflict
preemption serves as a defense to a state action.” Giles, 172 F.3d at 337 (emphasis
added). Accordingly, while conflict preemption does not create federal
subject-matter jurisdiction over a state-law claim, it does require dismissal of that
claim. See, e.g., Menchaca v. CNA Group Life Assurance Co., 331 F. App’x. 298,
304 (5th Cir. 2009) (per curiam) (upholding dismissal of state-law claims based on
§ 514 preemption); Jones v. LMR Intern., Inc., 457 F.3d 1174 (11th Cir. 2006)
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(“Unlike complete preemption, . . . defensive preemption is a substantive defense,
justifying dismissal of preempted state law claims.”).
The language of the ERISA preemption clause “is deliberately
expansive and has been construed broadly by federal courts.” Hubbard v. Blue
Cross & Blue Shield Ass’n, 42 F.3d 942, 945 (5th Cir. 1995) (citing Corcoran v.
United Healthcare, Inc., 965 F.2d 1321, 1328–29 (5th Cir. 1992)). A state cause of
action “relates to” an employee benefit plan whenever it has “a connection with or
reference to such a plan.” Corcoran, 965 F.2d at 1329 (citing Shaw v. Delta Air
Lines, Inc., 463 U.S. 85, 96–97 (1983)). Despite ERISA’s broad “related to”
preemption, however, its reach is not “limitless.” Rozzell v. Security Servs., 38
F.3d 819, 822 (5th Cir. 1994) (citations omitted). There are state-law claims that
are “too tenuous, remote, or peripheral . . . to warrant a finding that the [state] law
relates to the plan.” Shaw, 463 U.S. at 100 n.21. Accordingly, the Fifth Circuit
has described a conjunctive test for conflict preemption, explaining that
[s]tate law causes of action . . . are barred by § 1144(a) if (1) the state law
claim addresses an area of exclusive federal concern, such as the right to
receive benefits under the terms of an ERISA plan; and (2) the claim directly
affects the relationship between the traditional ERISA entities—the
employer, the plan and its fiduciaries, and the participants and beneficiaries.
Hubbard, 42 F.3d at 945 (emphasis added) (citing Weaver v. Employers
Underwriters, Inc., 13 F.3d 172, 176 (5th Cir. 1994)); Access Mediquip L.L.C. v.
UnitedHealthcare Ins. Co., 662 F.3d 376, 382 (5th Cir. 2011) (same), reh’g en banc
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granted, 678 F.3d 940 (5th Cir. 2012), opinion reinstated in part on reh’g, 698 F.3d
229 (5th Cir. 2012), cert. denied, 133 S. Ct. 1467 (U.S. 2013).
C. The Causes of Action in the Complaint
For the reasons that follow, the Court finds that Plaintiff’s claims
against UHC are preempted by ERISA; that Plaintiff’s remaining claims are not
preempted; that Plaintiff fails to state a claim for intentional infliction of emotional
distress; and that Plaintiff does state claims for negligence, negligent
misrepresentation, and violations of the Texas Insurance Code and the Deceptive
Trade Practices Act against Paychex and Walker.
1. Breach of Contract and Wrongful Denial of Insurance Benefits
Against UHC
Plaintiff’s first cause of action is one for breach of contract and
wrongful denial of insurance benefits against Defendant UHC. (Compl. ¶¶ 27–28.)
Plaintiff insists that a valid contract was formed when she and Mr. Kersh submitted
the enrollment form to Paychex, an agent of UHC. (Compl. ¶ 27.) UHC’s
enrollment form, argues Plaintiff, “ma[de] it clear that the Plaintiffs were
authorized to select an amount of life insurance coverage they wished to purchase
and the premiums would be taken out of Randy Kersh’s paycheck.” (Id.)
“Plaintiffs tendered performance by submitting the enrollment form,” and UHC
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“breached the insurance contract by failing to pay the $750,000 under the policy
. . . .” (Id.)
UHC argues that these claims “arise solely out of the administration
of the Salto Plan and, therefore, are completely preempted.” (Doc. # 22 at 2.)
First, UHC notes that Plaintiff contends that “Randy Kersh’s death is a covered
loss within the language of the policy” and that UHC “breached the insurance
contract by failing to pay the $750,000 under the policy . . . .” (Id. (quoting
Compl. ¶ 27).) “[O]ne would be hard pressed,” states UHC, “to find language that
more clearly implicates the doctrine of complete preemption.” (Doc. # 22 at 2.)
Second, UHC argues that Plaintiff’s claims are conflict preempted under § 514(a)
since “she is seeking to recover damages based on United’s administration of her
benefit claim under the Salto Plan.” (Id. at 3–4.)
Plaintiff does not contest that the Salto Plan, providing for $15,000 in
life insurance for Salto employees, is an ERISA-governed plan. (Resp. at 11.)
However, Plaintiff insists that this cause of action is not about the Salto Plan at all;
it is about a separate, individual life insurance policy that Mr. Kersh purchased in
the amount of $750,000:
Unlike the group life insurance which may have been paid for by Salto for
its full-time employees for coverage of a maximum of $15,000, the life
insurance represented to be purchased individually in increments of “$4.95
per $15k” for a total of $750,000 was purchased by Mr. Kersh at his sole
discretion. He chose to pay the policy premium, which was to be deducted
from his paycheck and transmitted to UnitedHealthcare.
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(Id.) In other words, Plaintiff argues that she is not seeking $750,000 under the
terms of the Salto Plan, which she acknowledges is capped at $15,000; she is
seeking to recover damages resulting from UHC’s alleged breach of a separate
contract for a life insurance policy with $750,000 in coverage.
The Fifth Circuit addressed and rejected a similar argument in Cefalu
v. B.F. Goodrich Co., 871 F.2d 1290 (5th Cir. 1989). In that case, Cefalu, an
employee of B.F. Goodrich, sought to recover benefits that Goodrich orally
promised him he would receive if he left employment with that company and
opened a Goodrich retail franchise. When he later discovered that his retirement
plan did not provide for the promised benefits, Cefalu filed a state action for breach
of an alleged oral contract, which was later removed to federal court. Cefalu, in an
argument echoing Plaintiff’s, “concede[d] that [his] pension benefits were properly
calculated” under the terms of the ERISA plan, id. at 1292, but argued that the
separate oral contract entitled him to more:
Cefalu further asserts that he is not seeking recovery from the assets of the
ERISA plan or claiming more from the retirement program than the terms of
the Plan specify. Instead, Cefalu claims he is merely seeking recovery from
Goodrich pursuant to a valid oral contract unrelated to the ERISA plan.
Therefore, Cefalu contends that since his state law claim does not “relate to”
an employee benefit plan, it is not preempted by ERISA.
Id. at 1293 (emphasis added). The Fifth Circuit, based on its review of the case
law and ERISA’s legislative history, held that “[t]his contention [was] without
20
merit” and that Cefalu’s breach-of-contract claim “related to” Goodrich’s ERISA
plan. Id. at 1292–93. As the Fifth Circuit later explained, Cefalu “rejected the
contention that preemption was avoided because the former employee was not
seeking recovery from the plan itself or its assets, but only from his former
employer.” Lee v. E.I. DuPont de Nemours and Co., 894 F.2d 755, 757 (5th Cir.
1990); see also Memorial Hosp. System v. Northbrook Life Ins. Co., 904 F.2d 236,
245 (5th Cir. 1990) (“We have [] held in this circuit that ERISA preempts state law
claims, based on breach of contract, fraud, or negligent misrepresentation, that
have the effect of orally modifying the express terms of an ERISA plan and
increasing plan benefits for participants or beneficiaries who claim to have been
misled.”); Olson v. Gen. Dynamics Corp., 960 F.2d 1418 (9th Cir. 1991) (holding
that fraudulent oral misrepresentation of the level of benefits does not provide the
basis for a non-preempted claim even though ERISA may also provide no remedy).
Similarly, in Anderson v. John Morrell & Co., 830 F.2d 872 (8th Cir.
1987), Anderson claimed he had accepted a management position after the
defendant had assured him his fringe benefits would be as good as those he would
have received had he remained a member of a union. Id. at 873–74. When this
turned out not to be true, Anderson brought a breach-of-contract action under state
law contending that the defendant’s representations “amounted to an offered
promise,” which he accepted by performing work, resulting in a binding contract.
21
Id. at 874. Anderson insisted that his state-law claim was not preempted by
ERISA because he was not trying to enforce or clarify his rights under a benefit
plan but was merely trying to establish contractual rights to have other benefits
added to the plan. Id. at 875. The Eighth Circuit disagreed and found that
plaintiff’s state-law claim was preempted, stating:
Anderson would distinguish between an action to recover benefits (or
enforce his rights or clarify his rights to future benefits) under the terms of a
plan as it exists (in which case state law is clearly preempted [. . .]) and an
action to establish his contract right to have other benefits added to the plan
(in which case he argues that state law applies). We think his distinction
cannot stand, and conclude that principles of common law governing a
claimed contract right to have the plan modified clearly “relates to” the plan
and that state law in that area is preempted.
Id. at 875 (emphasis added).
Just like the plaintiffs in Cefalu and Anderson, Plaintiff is arguing, in
essence, that the Court should distinguish between an action to recover benefits
under the terms of an ERISA plan (here, the Salto Plan) and an action to establish
Plaintiff’s contractual right to have other benefits (here, a larger payout of
$750,000) added to the plan. Id. While there may be some superficial appeal to
Plaintiff’s attempt to distinguish the Salto Plan from the $750,000 life insurance
she and Mr. Kersh thought they were purchasing, the allegations in the Complaint
and the exhibits attached thereto belie the contention that Plaintiff and Mr. Kersh
believed they were signing up for an independent policy. The Complaint and its
exhibits make clear that, at all relevant times, Plaintiff and Mr. Kersh understood
22
that they were working with an agent of Salto—Ms. Leimbach, Salto’s Director of
Human Resources—in order to obtain life insurance through Salto.
First, in the July 26, 2011 email that Plaintiff attaches to the
Complaint, Leimbach asked Walker and another Paychex employee whether life
insurance was available to “Salto employees.” (Compl. Ex. C.) In response to
Leimbach’s emails requesting clarification about coverage provided through the
Salto Plan, Walker explained that “[o]n page 9 of the attached renewal you can see
that your group offers $15,000 in total benefit. The cost per month comes to $4.95
. . . .” (Id.) Plaintiff alleges that Ms. Leimbach forwarded Mr. Kersh this and all
other emails from Mr. Walker, making plain that the Kershes knew Leimbach was
inquiring about what coverage was available under the Salto Plan. (Compl.
Ex. H ¶ 6; Resp. ¶ 6).) That this is true is made even clearer by the email that
Leimbach then sent to Mr. Kersh:
Hi Randy,
The life insurance offered by Salto via Paychex costs 4.95 per $15,000
payout, [sic] if you are interested let me know. The completed health
insurance enrollment form should be faxed to (585) 249–4029.
Let me know if you need anything else.
Linda
(Compl. Ex. C (emphasis added).) While the Kershes may well have been
confused about whether more coverage was available (i.e., whether “$4.95 per
$15,000 payout” meant that the maximum coverage was $15,000 or whether
insurance could be procured in $15,000 increments), this email leaves no room for
23
doubt that the parties were discussing “[t]he life insurance offered by Salto . . . .”
Indeed, Plaintiff states in her Response to Defendants’ Motion to Dismiss that Mr.
Kersh “was told in his initial employment offer that he could buy life insurance
through the company, but that he was solely responsible to pay the costs.”
(Resp. at 25.)
In addition to these emails, Plaintiff’s claim for payment following
Mr. Kersh’s death makes plain that Plaintiff knew that any life insurance Mr.
Kersh had signed up for was offered through Salto and the Salto Plan.
Specifically, after Mr. Kersh’s death, Plaintiff submitted a Request for Group Life
Insurance Benefits to UHC requesting payment of the $750,000, and in the block
labeled “Group Policy Number,” Plaintiff wrote “0724824”—the policy number of
the Salto Plan. (Compl. Ex. F.) Moreover, after Plaintiff’s claim for $750,000 was
denied, Plaintiff’s counsel submitted an Appeal Letter to UHC’s Appeals
Department that also referenced policy number 0724824 and listed the
policyholder as Salto Systems, Inc. (Compl. Ex. H.)
The Court need not reach the merits of Plaintiff’s breach-of-contract
claim to conclude that is it “related to” the Salto Plan. As in Cefalu and Anderson,
the plain terms of the ERISA plan do not entitle Plaintiff to the amount she
requests. (See Compl. Ex. D (stating, beneath the box listing the policy limit of
$15,000, that “the Employee may not apply for amounts of Insurance which
24
exceed the Employee’s eligible Life Insurance Benefit Amount that is stated
above”).) Like the plaintiffs in those cases, Plaintiff argues that her state-law claim
“does not ‘relate to’ an employee benefit plan” because she is “seeking recovery
. . . pursuant to a valid [] contract unrelated to the ERISA plan.” Cefalu, 871 F.2d
at 1293. While the contracts in Cefalu and Anderson were oral, the fact that the
alleged contract in this case is written is immaterial; in both cases, the supposedly
“unrelated” contract, if enforced, would increase the amount of benefits due the
beneficiary beyond the amount for which the plan provided. As in Cefalu and
Anderson, therefore, Plaintiff’s argument fails. More generally, Plaintiff’s
breach-of-contract claim satisfies both prongs of the conjunctive test described in
Hubbard: It addresses an area of exclusive federal concern (the right to receive
benefits under an ERISA plan), and it directly affects the relationship between
traditional ERISA entities (in this case, the relationship between a beneficiary and
a fiduciary). 42 F.3d at 945; see also Bank of La. v. Aetna U.S. Healthcare Inc.,
468 F.3d 237, 244 n.11 (5th Cir. 2006) (“A party acts in a fiduciary capacity when
he: 1) exercises discretionary control over plan assets; 2) he renders investment
advice for a fee to the plan; or 3) he has discretionary responsibility with regard to
plan administration.”). Accordingly, Plaintiff’s claim against UHC is related to an
ERISA plan, is subject to conflict preemption, and must be dismissed. See
25
Menchaca, 331 F. App’x. at 304 (upholding dismissal of state-law claims based on
§ 514 preemption).
2. Plaintiff’s Negligence Claim Against Paychex and Walker
Plaintiff’s second cause of action is one for negligence, asserted
against Paychex and Walker. Plaintiff alleges that Paychex and Walker had “a
duty to act with ordinary care and to use reasonable diligence in providing
information about the subject life insurance and the means of securing the same, in
securing the requested insurance[,] and in informing the Plaintiffs promptly if
unable to do so.” (Compl. ¶ 29.) Plaintiff further alleges that Paychex and Walker
“breached these duties by giving incorrect and/or misleading information upon
which Plaintiffs reasonably relied and/or by failing to place the insurance as
requested and instead by participating in a bad faith scheme to alter the key
enrollment form.” (Id.) “These breaches have been the proximate cause of
damages to the Plaintiffs,” alleges the Complaint, because “[i]f Plaintiffs had been
informed that they could not purchase life insurance from UnitedHealthcare, they
would have purchased the same through another company.” (Id.)
Defendants argue that this and all of Plaintiff’s other claims against
Paychex and Walker must be dismissed because they are related to the Salto Plan.
(MTD at 19.) Defendants insist “that ‘[t]he critical determination [is] whether the
claim itself created a relationship between the plaintiff and defendant that is so
26
intertwined with an ERISA plan that it cannot be separated.’” (Id. (quoting Bank
of La. v. Aetna U.S. Healthcare, Inc., 468 F.3d 237, 243 (5th Cir. 2006).) Because
“Plaintiff’s state law claims implicate the terms and administration of the Salto
Plan,” argue Defendants, “those claims are so intertwined with the Salto Plan [that]
they are preempted.” (MTD at 19.)
As a preliminary matter, the Court notes that the Fifth Circuit has
found that Congress did not intend for ERISA preemption to extend to state-law
tort claims brought against an independent insurance agent. Perkins v. Time Ins.
Co., 898 F.2d 470, 473 (5th Cir. 1990). In Perkins, the plaintiff alleged that an
independent insurance agent had fraudulently induced him to forfeit an insurance
policy that covered his daughter’s condition for one that did not. Id. The Court
held that “a state law claim of that genre, which does not affect the relations among
the principal ERISA entities (the employer, the plan fiduciaries, the plan, and the
beneficiaries) as such, is not preempted by ERISA.” Id. (emphasis added). “[A]
claim that an insurance agent fraudulently induced an insured to surrender
coverage under an existing policy, to participate in an ERISA plan which did not
provide the promised coverage,” the court continued, “‘relates to’ that plan only
indirectly.” Id.; see also Chidester v. Quoyeser, 41 F.3d 664 (5th Cir. 1994)
(noting that the court’s holding in Perkins “was based on our finding that the fraud
did not affect the relations among the principal ERISA entities”) (alteration
27
omitted); Morstein v. Nat’l Ins. Servs., Inc., 93 F.3d 715, 722 (11th Cir. 1996)
(adopting “the rationale of the Fifth Circuit as stated in Perkins” and holding that a
state-law claim brought against an insurance agent, which is not an ERISA entity,
does not affect relations among principal ERISA entities and is not preempted by
ERISA). By focusing on the fact that the insurance agent was not an ERISA
entity, the Fifth Circuit was, in essence, simply applying its standard two-prong
test for conflict preemption. See Hubbard, 42 F.3d at 945 (explaining that
state-law causes of action are conflict preempted if (1) the claim addresses an area
of exclusive federal concern and (2) the claim directly affects the relationship
between the traditional ERISA entities).
Under Perkins and the general test for conflict preemption, Plaintiff’s
negligence claim against Paychex and Walker is not subject to conflict preemption.
First, unlike Plaintiff’s breach-of-contract claim, this claim is not one that
addresses an area of exclusive federal concern, such as the distribution of benefits
under an ERISA plan. Compare Transitional Hospitals Corp. v. Blue Cross and
Blue Shield of Tex., Inc., 164 F.3d 952, 955 (5th Cir. 1999) (holding that ERISA
did not preempt hospital’s claims against ERISA plan administrator for
misrepresentation under Texas Insurance Code because hospital’s claims were not
dependent on or derived from the beneficiary’s right to recover benefits under the
plan), with Hermann Hospital v. MEBA Med. & Benefits Plan, 845 F.2d 1286,
28
1290 (5th Cir. 1988) (holding hospital’s state-law claims for breach of fiduciary
duty, negligence, equitable estoppel, breach of contract, and fraud were preempted
by ERISA where the hospital sought to recover benefits owed to a plan participant
who had assigned her right to plan benefits to the hospital); Hansen v. Continental
Ins. Co., 940 F.2d 971 (5th Cir. 1991) (holding that claims for misrepresentation
under Texas Insurance Code were preempted because the plaintiffs sought to
recover benefits under an ERISA plan). Instead of seeking insurance proceeds
under the Salto Plan, Plaintiff’s negligence claim seeks compensatory damages
from Paychex and Walker based on their alleged negligence in failing to use
reasonable diligence to procure the insurance that Plaintiff desired. See McMurtry
v. Wiseman, 445 F. Supp. 2d 756, 776–77 (W.D. Ky. 2006) (finding no
preemption where plaintiff sought recovery not from the plan or an ERISA entity
but from the insurance agent individually); Jewell v. Great Lakes Financial
Partners, LLC, Nos. 5:06 CV 0941, 5:06 CV 0942, 2006 WL 1644351, at *2 (N.D.
Ohio June 7, 2006) (same). Plaintiff does not claim that Paychex’s and Walker’s
negligence prevented her from obtaining the benefits she was due under the Salto
Plan, and the Court would not have to interpret the terms of the Salto Plan to
determine the extent of any damages. Cf. Johnson v. Reserve Life Ins. Co., 761 F.
Supp. 93, 95–96 (C.D. Cal. 1991) (employee’s negligence claims against broker
29
preempted by ERISA because claims would require interpretation of ERISA plan
to determine what benefits employee would have received but for negligence).
Moreover, neither Walker nor Paychex is a traditional ERISA entity.
Walker and Paychex quite clearly are not the employer, the plan, participants, or
beneficiaries; and because neither Walker nor Paychex exercises discretionary
control over plan assets, renders investment advice to the plan, or has discretionary
responsibility with regard to plan administration (at least according to the
information currently before the Court), neither is an ERISA fiduciary. See Bank
of La., 468 F.3d at 244. Even if Plaintiff prevailed on her negligence claim against
Paychex and Walker, therefore, it would not affect the relationship between
traditional ERISA entities or impact the structure or administration of the Salto
Plan. Cf. Hubbard, 42 F.3d at 947 (finding important whether the state-law claims
are “bound up with interpretation and administration of the ERISA plan”).
Accordingly, the Court concludes that Plaintiff’s negligence claim is not conflict
preempted.
To maintain a negligence cause of action, a plaintiff must show (1) a
legal duty owed by the defendant to the plaintiff; (2) a breach of the duty; and (3)
damages proximately caused by the breach. D. Houston, Inc. v. Love, 92 S.W.3d
450, 454 (Tex. 2002). “It is established in Texas that an insurance agent who
undertakes to procure insurance for another owes a duty to a client to use
30
reasonable diligence in attempting to place the requested insurance and to inform
the client promptly if unable to do so.” May v. United Servs. Ass’n of Am., 844
S.W.2d 666, 669 (Tex. 1992). In other words, an insurance agent’s duty to a client
“arises from the agent’s or broker’s contract to procure coverage for the client.” 49
Causes of Action 2d § 5 (2011).
Plaintiff insists that Walker and Paychex had a duty to Mr. Kersh
(Compl. ¶ 29), but that is a legal conclusion that the Court need not accept as true
for purposes of a motion to dismiss. See Fareed v. Accreditation Council for
Graduate Med. Educ., --- F. Supp. 2d ---, 2012 WL 5462600, at *5 (S.D. Tex. Aug.
1, 2012) (dismissing the plaintiff’s negligence cause of action where the complaint
“fail[ed] to allege any facts, as opposed to legal conclusions,” in support of the
claim that the defendants owed him a duty”). Instead, “[t]he existence of a legal
duty is a determination made by the court as a matter of law.” Fareed, 2012 WL
5462600, at *4 (S.D. Tex. Aug. 1, 2012) (citing Nabors Drilling, U.S.A. v. Escoto,
288 S.W.3d 401, 404 (Tex. 2009). For the reasons just stated, the duty that an
insurance agent owes to a client arises from the agent’s agreement to procure
coverage for the client. Accordingly, the Court’s initial inquiry is whether Plaintiff
has pleaded facts that, if true, would establish that Walker or Paychex agreed to
procure $750,000 in coverage for Mr. Kersh.
31
Plaintiff has done so. Plaintiff has alleged that Walker told Mr.
Kersh, through Leimbach, to fax his enrollment form to Paychex. (Compl. ¶ 18.)
Plaintiff has alleged that Mr. Kersh faxed his enrollment form to Paychex on
August 18, 2011, and that the form indicated that he was requesting $750,000 in
life insurance. (Id. ¶ 21.) And Plaintiff has alleged that on August 22, 2011,
Walker emailed Leimbach to say that Mr. Kersh was “all set” and that Walker “just
need[ed] that social to get [Kersh’s] spouse enrolled.” (Compl. Ex. C.) These
allegations, if proven, may be sufficient to establish that Walker agreed to procure
insurance for Mr. Kersh, giving rise to a duty “to use reasonable diligence in
attempting to place the requested insurance and to inform the client promptly if
unable to do so.” May, 844 S.W.2d at 669.
If Plaintiff can prove that Mr. Kersh did request $750,000 in life
insurance on his enrollment form, a jury could find that Walker was negligent for
failing to procure said insurance or, at the very least, for failing to inform Mr.
Kersh in a timely manner that he would be unable to do so and instead telling him
that he was “all set.” See Burroughs v. Bunch, 210 S.W.2d 211, 214 (Tex. App.
1948) (holding agent liable for fire damage to the house his customer was building
when the agent, after agreeing to have a builder’s risk policy issued on the house,
failed to notify the customer that he had not procured such a policy); Scott v.
Conner, 403 S.W.2d 453, 458 (Tex. App. 1966) (holding agent liable for fire
32
damage after his customer requested a new policy to replace one cancelled by the
insurer, and the agent neither procured such a replacement policy nor alerted the
customer to this failure by returning the unearned portion of the premium from the
original policy). Accordingly, Plaintiff has stated a claim for negligence, and
Defendants’ motion to dismiss is denied as to that claim.
3. Plaintiff’s Negligent Misrepresentation Claim Against Paychex
and Walker
Plaintiff’s third cause of action is one for negligent misrepresentation
against Paychex and Walker. To state a claim for negligent misrepresentation, a
plaintiff must allege that “(1) the defendant made a representation in the course of
its business or in a transaction in which it had an interest, (2) the defendant
supplied false information for the guidance of others in their business, (3) the
defendant did not exercise reasonable care or competence in obtaining or
communicating the information, and (4) the plaintiff suffered pecuniary loss by
justifiably relying on the representation.” Cunningham v. Tarski, 365 S.W.3d 179,
186–87 (Tex. App. 2012). Plaintiff alleges that Paychex and Walker made false
representations in the course of their business when Walker, as Paychex’s agent,
“sent a written communication that was intended to reach Plaintiffs and did reach
Plaintiffs explaining that additional life insurance was available at $4.95 per
$15,000 in coverage.” (Compl. ¶ 30.) Plaintiff alleges that Walker did not
33
exercise reasonable care or competence when he made these statements and that
Plaintiff and Mr. Kersh “reasonably relied on these representations to their
detriment . . . .” (Id.) Plaintiff alleges that if she and Mr. Kersh had been informed
that they could not purchase $750,000 in life insurance from UHC, “they would
have purchased the same through another company.” (Id.)
For the reasons given in the preceding section, this state-law claim,
which is brought against non-ERISA entities and does not seek benefits under an
ERISA plan, is not subject to conflict preemption. See Access Mediquip, 662 F.3d
at 385 (holding that third party’s suit against plan administrator for
misrepresentation was not related to ERISA plan because “[t]he finder of fact need
only determine (1) the amount and terms of reimbursement that [plaintiff] could
reasonably have expected given what could fairly be inferred from [defendant’s]
statements, and (2) whether [defendant’s] subsequent disposition of the
reimbursement claims was consistent with that expectation”); Wilson v. Zoellner,
114 F.3d 713 (8th Cir. 1997) (holding insured’s claim against insurance agent for
negligent misrepresentation not preempted by ERISA; agent told insured he would
be covered for work-related injuries when he in fact was not). Again, the real
question is whether Plaintiff has stated a claim.
34
A negligent misrepresentation cause of action need not be pleaded
with particularity unless it is based on the same operative facts as a fraud claim.
Lone Star Fund v. Barclays Bank, 594 F.3d 383, 387, 387 n.3 (5th Cir. 2010); see
also Am. Realty Trust, Inc. v. Hamilton Lane Advisors, Inc., 115 F. App’x 662,
668–69 (5th Cir. 2004) (“[I]t was error for the district court to dismiss plaintiffs’
negligent misrepresentation claims for failure to plead with particularity.”).
Plaintiff’s negligent misrepresentation claim is not based on the same allegations
as a fraud claim, so it is subject only to the liberal pleading standards of Rule 8(a).
Defendants do not seem to contest that Plaintiff has adequately
alleged some of the elements of a negligent misrepresentation claim. First,
Plaintiff has alleged that Walker made representations about the amount of life
insurance available “in the course of his business” as an insurance agent.
(Compl. ¶ 30.) Second, Plaintiff has alleged that Walker supplied the information
about the life insurance available in order to guide Plaintiff and Mr. Kersh, who
were seeking life insurance.4 (Id.) Third, Plaintiff has alleged that Walker did not
4
The fact that Walker did not communicate directly with Plaintiff or Mr. Kersh
does not doom Plaintiff’s claim for negligent misrepresentation. As the Texas
Supreme Court has made clear, “[t]he theory of negligent misrepresentation
permits plaintiffs who are not parties to a contract for professional services to
recover from the contracting professionals.” McCamish, Martin, Brown &
Loeffler v. F.E. Appling Interests, 991 S.W.2d 787 (Tex. 1999). This is so because
“liability is not based on the breach of duty owed by a professional to his client or
others in privity” but on “‘the professional’s manifest awareness of the nonclient’s
reliance on the misrepresentation and the professional’s intention that the nonclient
35
exercise reasonable care or competence in obtaining or communicating the
information. (Id.) And finally, Plaintiff alleges that Walker’s misrepresentations
were “the proximate cause of damages to the Plaintiffs,” who would have
purchased life insurance through another company had they realized that they
could obtain just $15,000 in coverage through Paychex and UHC.5 (Id.) See
Brown, 317 S.W.3d at 387 (“Evidence that a misrepresentation as to the terms or
benefits of coverage prevented an insured from taking steps to prevent a loss is
sufficient to support a jury finding that the misrepresentation was a producing
cause of damages.”).
Nevertheless, Defendants insist that Plaintiff’s claim must be
dismissed because she does not allege that Walker provided any false
information—and, accordingly, that she does not adequately allege the second
so rely.’” Wright v. Sydow, 173 S.W.3d 534, 554 (Tex. App. 2004) (quoting
McCamish, 991, S.W.2d at 792); see also Restatement (Second) of
Torts § 552(2)(a) (limiting liability to losses suffered “by the person or one of a
limited group of persons for whose benefit and guidance he intends to supply the
information or knows that the recipient intends to supply it”) (emphasis added).
Thus, Plaintiff may recover under a theory of negligent misrepresentation even if
she and Mr. Kersh were not in privity of contract with Walker or Paychex, so long
as Walker knew or should have known that Mr. Kersh would rely on his
statements.
5 The Court recognizes that this is the weakest part of Plaintiff’s claim given the
very short amount of time between the alleged misrepresentations and Mr. Kersh’s
death; however, whether the Kershes were actually harmed by the alleged
representations—whether they would have been able to procure more than $15,000
in life insurance from another company before Mr. Kersh’s death—is a question
for the jury.
36
element of a negligent misrepresentation claim. (MTD at 22.) “[T]o prove
negligent misrepresentation,” they claim, “a plaintiff must establish that the
defendant gave false in formation”; “[m]isleading but not false information is
insufficient . . . .” (MTD at 22.)
While at least one Texas court has agreed with Defendants’
contention, see Continental Savings Ass’n v. Collins, 814 S.W.2d 829, 833 (Tex.
App. 1991) (holding that “the furnishing of misleading information” cannot
support a claim for negligent misrepresentation; the information must be “false”),
that court cited no precedent and relied solely on the supposedly plain language of
the Restatement (Second) of Torts. See id. at 833 (noting that § 552 of the
Restatement refers to “false” information). The commentary on that section of the
Restatement contradicts that court’s strict interpretation of the word “false,”
explaining that the professional “must exercise reasonable care and competence in
communicating the information so that it may be understood by the recipient” and
to ensure that “information accurately obtained [is not] so communicated as to be
misleading.” Restatement (Second) Torts § 552 cmt. f (emphasis added).
Moreover, other Texas courts have used the terms “false” and “misleading”
interchangeably when discussing negligent misrepresentation claims. See, e.g.,
K3C Inc. v. Bank of Am., N.A., 204 F. App’x 455, 462 (5th Cir. 2006) (holding,
under Texas law, that appellants “could not have prevailed on the merits of their
37
negligent misrepresentation claim” because they had “not identified any statements
of fact by BOA that were actually false . . . [or] so incomplete as to be
misleading”) (emphasis added); Hagans v. Woodruff, 830 S.W.2d 732, 736 (Tex.
App. 1992) (“The controlling issue in appellants’ claim for negligent
misrepresentation was whether appellants provided any false or misleading
information.”) (emphasis added); Blue Bell, Inc. v. Peat, Marwick, Mitchell & Co.,
715 S.W.2d 408 (Tex. App. 1986) (denying summary judgment on negligent
misrepresentation claim because defendant “failed to negate a fact issue
concerning whether [it] provided false or misleading information”) (emphasis
added). Accordingly, the Court rejects Defendants’ contention that Texas law
would permit a defendant to escape liability for making an egregiously misleading
statement on which he knew another would rely simply because in some narrow,
technical sense the statement could be considered true.
At this stage, however, any distinction between false and misleading
statements is irrelevant, because Plaintiff does allege that Defendant Walker made
a false statement. The Complaint alleges that Walker “sent a written
communication that was intended to reach Plaintiffs and did reach Plaintiffs
explaining that additional life insurance was available at $4.95 per $15,000 in
coverage.” (Compl. ¶ 30.) Defendants did not argue in their papers or at the
hearing that this is true (i.e., that Mr. Kersh could have procured insurance
38
coverage at a rate of $4.95 per $15,000 payout); accordingly, if Walker really
made such a representation, it was a false statement.
Defendants argued at the hearing that this Court should look at the
documents attached to the Complaint to determine whether any false statements
were made and dismiss Plaintiff’s claim if none were. They pointed to Lone Star
Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383 (5th Cir. 2010), in which
the Fifth Circuit affirmed the district court’s dismissal of a negligent
misrepresentation claim under Rule 12(b)(6) where, in light of the complaint and
the documents on which it relied, the defendant had made “no actionable
misrepresentations.” Id. at 388–89. In Lone Star, however, there was no question
as to precisely which statements the plaintiffs were basing their claims on, and the
court concluded that those statements—certain provisions of a prospectus—when
viewed in context, did not make the misrepresentations plaintiffs alleged. Id. at
389. In this case, by contrast, Plaintiff has alleged that Walker made a statement
that Defendants do not dispute would have been false: that Mr. Kersh could obtain
life insurance at a rate of $4.95 per $15,000 payout. While Plaintiff does not attach
a copy of that “written communication” to the Complaint, Plaintiff’s ability to
prove that Walker made such a statement is a question for summary judgment, not
a 12(b)(6) motion. Plaintiff has adequately alleged that Walker made a false
statement in the course of his business and that she and Mr. Kersh relied on that
39
false statement to their detriment. Accordingly, Defendants’ motion to dismiss is
denied as to this claim.
4. Plaintiff’s Texas Insurance Code Claims Against Paychex and
Walker
Plaintiff’s fourth cause of action is against Paychex and Walker for
violations of the Texas Insurance Code, Tex. Ins. Code. § 541.001 et seq. The
Texas Insurance Code provides, in relevant part:
It is an unfair method of competition or an unfair or deceptive act or practice
in the business of insurance to misrepresent an insurance policy by:
(1) making an untrue statement of material fact;
(2) failing to state a material fact necessary to make other statements
made not misleading, considering the circumstances under which the
statements were made;
(3) making a statement in a manner that would mislead a reasonably
prudent person to a false conclusion of a material fact;
[…]
Tex. Ins. Code § 541.061.
Plaintiff alleges that Paychex and Walker violated the Insurance Code
when they (1) misrepresented the nature and terms of an insurance policy; (2)
provided false information and advertising; (3) made misrepresentations regarding
the benefits, advantages, or dividends of a policy; (4) made a misrepresentation
that induced a policy holder to allow an existing policy to lapse or to forego
insurance; (5) made an untrue statement of material fact; (6) failed to state a
material fact necessary to make other statements not misleading; and (7) made a
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statement in such a manner as to mislead a reasonably prudent person to a false
conclusion of a material fact. (Compl. ¶ 32.) Plaintiff bases these claims both on
Walker’s alleged misrepresentations during the enrollment phase and on Walker’s
or another Paychex employee’s alleged fraudulent alteration of Mr. Kersh’s
enrollment form. (Id. ¶ 31.)
Defendants argue that these claims, like all others in the Complaint,
relate to the Salto Plan and are therefore subject to conflict preemption. (MTD at
19.) While some claims brought under the Texas Insurance Code are preempted
by ERISA, see, e.g., Hansen v. Continental Ins. Co., 940 F.2d 971 (5th Cir. 1991)
(holding that claims for misrepresentation under Texas Insurance Code were
preempted because the plaintiffs sought to recover benefits under an ERISA plan),
such preemption is not automatic. Instead, the preemption inquiry is the same as
with any other state-law claim: A court must ask whether the cause of action
addresses an area of exclusive federal concern and whether it directly affects the
relationship between the traditional ERISA entities. Accordingly, courts have held
that claims under the Texas Insurance Code are not preempted where the claim is
not premised on the right to recover benefits under the terms of an ERISA plan.
See, e.g., Transitional Hospitals Corp. v. Blue Cross, 164 F.3d 952, 955 (5th
Cir.1999) (holding plaintiff’s “state-law claims alleging common law
misrepresentation and statutory misrepresentation under the Texas Insurance Code
41
Art. 21.21” not preempted because they were “not dependent on . . . [the] right to
recover benefits under the [ERISA] plan”). For the reasons given above—namely,
that this claim is not against an ERISA entity and does not seek benefits under the
Salto Plan—the Court finds no support for Defendants’ contention that this claim
is preempted by ERISA.
In the alternative, Defendants insist that Plaintiff has no standing to
pursue a claim under the Texas Insurance Code because such claims do not survive
a decedent’s death and cannot be brought by a representative of the decedent’s
estate as a matter of law. (Id. at 26.) It is true that Texas courts are split on the
issue of whether claims under the Texas Insurance Code survive the decedent. See
Launius v. Allstate Ins. Co., Civ. No. 3:06-CV-0579-B, 2007 WL 1135347, at *3
(N.D. Tex. April 17, 2007) (collecting Texas cases and noting disagreement on
issue of survivability). As a named beneficiary of Mr. Kersh’s life insurance
policy, however, Plaintiff’s claim is direct; issues of assignability are inapposite.
See Williams v. Certain Underwriters at Lloyd’s of London, 398 F. App’x 44, 47
(5th Cir. 2010) (citations omitted) (“A plaintiff has standing to sue under an
insurance policy if the plaintiff is a named insured or an additional named insured
or if the plaintiff is an intended third-party beneficiary of the policy.”); Mendoza v.
Am. Nat. Ins. Co., 932 S.W.2d 605 (Tex. App. 1996) (holding that insured’s
widow, as beneficiary of life insurance policy, had standing as an injured person
42
under the Insurance Code). Accordingly, the Court rejects Defendants’ contention
that Plaintiff does not have standing to pursue a claim under the Texas Insurance
Code.
To state a claim under Chapter 541 of the Texas Insurance Code,
Plaintiff must allege that (1) she is a “person” as defined by Section 541.002(2) of
the Texas Insurance Code; (2) Defendants are “persons” as defined by Section
541.002(2) of the Texas Insurance Code; (3) Defendants engaged in an act or
practice that violated (a) Chapter 541, subchapter B, of the Texas Insurance Code
(§§ 541.051–541.061) or (b) Section 17.46 of the Texas Business and Commerce
Code, if Plaintiff relied on the act or practice to her detriment; and (4) the
Defendants’ act or practice was a producing cause of Plaintiff’s actual damages.
Tex. Ins. Code §§ 541.002(2), 541.151.
Plaintiff has adequately alleged all four elements. First, Plaintiff,
Walker, and Paychex are all “persons” under Section 541.002(2) of the Texas
Insurance Code, which defines “person” as:
an individual, corporation, association, partnership, reciprocal or
interinsurance exchange, Lloyd’s plan, fraternal benefit society, or other
legal entity engaged in the business of insurance, including an agent, broker,
adjuster, or life and health insurance counselor.
Tex. Ins. Code. § 541.002(2); see also Aspen Specialty Ins. Co. v. Muniz Eng'g,
Inc., 514 F. Supp. 2d 972, 983 (S.D. Tex. 2007) (“Agents are ‘persons’ engaged in
the business of insurance for the purposes of the Insurance Code.”).
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Second, Plaintiff has alleged that Defendant Walker, an agent of
Paychex, violated Chapter 541, subchapter B, of the Texas Insurance Code.
Section 541.061 prohibits a covered person from “misrepresent[ing] an insurance
policy by . . . (1) making an untrue statement of material fact; (2) failing to state a
material fact necessary to make other statements made not misleading, considering
the circumstances under which the statements were made; [or] (3) making a
statement in a manner that would mislead a reasonably prudent person to a false
conclusion of a material fact . . . .” Plaintiff alleges that Walker made a written
representation that life insurance was available at a rate of $4.95 per $15,000
payout, which would constitute an untrue statement of material fact in violation of
§ 541.061(1). Moreover, the Court is not convinced that Plaintiff could prove no
set of facts that would entitle her to relief under § 541.061(2) or (3) based on
certain of Walker’s communications with Leimbach, which may have been made
“in a manner that would mislead a reasonably prudent person to a false conclusion
of material fact . . . .”
Finally, Plaintiff satisfies the fourth element by alleging that Walker’s
statements, on which she and Mr. Kersh relied, prevented her and Mr. Kersh from
obtaining adequate life insurance elsewhere. See Brown, 317 S.W.3d at 387
(“Evidence that a misrepresentation as to the terms or benefits of coverage
prevented an insured from taking steps to prevent a loss is sufficient to support a
44
jury finding that the misrepresentation was a producing cause of damages.”).
Again, whether the Kershes were actually harmed by the alleged representations—
whether they would have been able to procure more than $15,000 in life insurance
from another company before Mr. Kersh’s death—is a question for the jury.
Accordingly, Plaintiff states a claim under the Texas Insurance Code, and
Defendants’ motion to dismiss is denied as to this claim.
5. Plaintiff’s DTPA Claims Against Paychex and Walker
Plaintiff’s fifth cause of action alleges that Paychex and Walker
violated the Texas Deceptive Trade Practices Act (“DTPA”), Tex. Bus. & Com.
Code § 17.41 et seq. Plaintiff alleges that Paychex and Walker violated the DTPA
when they (1) caused “confusion or misunderstanding as to the source,
sponsorship, approval, or certification of goods or services”; (2) represented “that
goods or services had . . . benefits . . . which they [did] not have”; (3) represented
“that an agreement confer[red] or involve[d] rights, remedies, or obligations which
it [did] not have or involve”; and (4) “fail[ed] to disclose information concerning
goods or services which was known by Defendant[s] . . . when such failure was
intended to induce the Plaintiffs into a transaction into which the Plaintiffs would
not have entered had the information been disclosed.” (Compl. ¶ 34.) Defendants
again argue that this claim is preempted by ERISA (MTD at 24–25); again, for the
reasons given in the preceding section, the Court rejects that contention.
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The elements of a DTPA claim are (1) the plaintiff is a consumer; (2)
the defendant committed a false, misleading, or deceptive act; and (3) the act
caused the consumer’s damages. Tex. Bus. & Com. Code Ann. §§ 17.45(4),
17.50(a); see also Brown & Brown of Tex., Inc. v. Omni Metals, Inc., 317 S.W.3d
361, 387 (Tex. App. 2010) (“Under the DTPA, a consumer may bring an action
when he has relied to his detriment on a false or misleading representation, and the
reliance is a producing cause of damages.”).
The question of consumer status under the DTPA is question of law
for the court to decide. Lukasik v. San Antonio Blue Haven Pools, Inc., 21 S.W.3d
394, 401 (Tex. App. 2000). As the court explained in Bohls v. Oakes, “[p]laintiffs
establish their standing as consumers by their relationship to the transaction, not by
a contractual relationship with the defendant.” Bohls v. Oakes, 75 S.W.3d 473,
479 (Tex. App. 2002) (citing Kennedy v. Sale, 689 S.W.2d 890, 892–93 (Tex.
1985)). “A third party beneficiary may qualify as a consumer of goods or services,
as long as the transaction was specifically required by or intended to benefit the
third party and the good or service was rendered to benefit the third party.” Bohls,
75 S.W.3d at 479; see also Bynum v. Prudential Residential Servs., L.P., 129
S.W.3d 781, 793 (Tex. App. 2004) (acknowledging that third-party beneficiaries of
a contract have standing to sue under the DTPA); Kennedy, 689 S.W.2d at 892–93
(holding that employee was consumer of medical insurance purchased by employer
46
for employee’s benefit); Wellborn v. Sears, Roebuck & Co., 970 F.2d 1420, (5th
Cir. 1992) (holding that son of woman who bought garage door opener was a
consumer because primary purpose of the purchase and installation into home was
to benefit son). Because Plaintiff was an intended third-party beneficiary of the
life insurance that Mr. Kersh was seeking, she qualifies as a consumer and has
standing to sue under the DTPA.6
For much the same reason that Plaintiff states a claim for negligent
misrepresentation and under the Texas Insurance Code, Plaintiff also states a claim
under the DTPA: She has alleged that Walker made misrepresentations regarding
the amount of insurance available to Mr. Kersh and that she and Mr. Kersh relied
on those misrepresentations to their detriment (i.e., by not purchasing insurance
from another source). Walker’s alleged misrepresentations, if proven, may
constitute violations of, inter alia, the DTPA’s prohibition against “representing
that goods or services have . . . characteristics, . . . benefits, or quantities which
they do not have . . . .” Tex. Bus. & Com. Code § 17.46(b)(5). Accordingly,
Plaintiff states a claim under the DTPA, and Defendants’ motion to dismiss is
denied as to this cause of action.
6
Defendants again argue that Plaintiff cannot bring a DTPA claim on behalf of Mr.
Kersh’s estate because such claims are not survivable. (MTD at 24–25.) Again,
however, Defendants’ argument misses the mark: Plaintiff has standing to bring a
DTPA claim on her own behalf, because she qualifies as a “consumer.”
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6. Plaintiff’s Claim Against All Defendants for Intentional Infliction
of Emotional Distress
Plaintiff’s final cause of action, asserted against all Defendants, is for
intentional infliction of emotional distress (“IIED”). (Compl. ¶ 36.) Courts have
uniformly held that claims for IIED based on an ERISA entity’s refusal to pay
benefits are preempted. See Burks v. Amerada Hess Corp., 8 F.3d 301, 305 (5th
Cir. 1993) (“[A] cause of action for infliction of emotional distress arising from the
denial of employee benefits is preempted by ERISA.”) (citing Brown v. Sw. Bell
Tel. Co., 901 F.2d 1250, 1254 (5th Cir. 1990), abrogated on other grounds by Giles
v. NYLCare Health Plans, Inc., 172 F.3d 332, 338 (5th Cir. 1999); Dishman v.
UNUM Life Ins. Co. of Am., 269 F.3d 974, 983 (9th Cir. 2001) (“[T]o find
Prudential liable for intentional infliction of emotional distress for not paying
benefits would be tantamount to compelling benefits, which assuredly encroaches
on the relationships regulated by ERISA.”) (internal quotation marks omitted).
Accordingly, for the reasons given in the discussion of Plaintiff’s
breach-of-contract claim against UHC, Plaintiff’s IIED claim against UHC is also
preempted by ERISA.
While Plaintiff’s IIED claim against the remaining Defendants—
Paychex and Walker—is not preempted by ERISA, her claim still must be
dismissed: Under Texas law, IIED “is a ‘gap-filler’ tort, allowing recovery in the
48
rare instances in which a defendant intentionally inflicts severe emotional distress
in an unusual manner so the victim has no other recognized theory of redress.”
Von Beck-Lutes v. Arning, 484 F. Supp. 2d 585, 588 (W.D. Tex. 2007); see also
Hoffmann–La Roche, Inc. v. Zeltwanger, 144 S.W.3d 438, 447 (Tex. 2004)
(“Where the gravamen of a plaintiff’s complaint is really another tort, intentional
infliction of emotional distress should not be available.”). As the rest of this Order
makes clear, the gravamen of Plaintiff’s Complaint is really other torts: negligence,
negligent misrepresentation, and violations of the Texas Insurance Code and
DTPA. The conduct on which Plaintiff’s IIED claim is based is the same conduct
that underlies her other claims. Accordingly, even assuming that the alleged
conduct is sufficiently “extreme and outrageous,” Plaintiff’s IIED claim fails under
Texas law and must be dismissed. See Stewart v. Lexicon Genetics, Inc., 279
S.W.3d 364, 372 (Tex. App. 2009) (affirming district court’s grant of summary
judgment on IIED claim where “[n]one of the alleged extreme and outrageous
conduct [was] independent of the conduct that forms the basis of the other torts
asserted in the petition”).
II.
Defendants’ Motion to Strike Plaintiff’s Jury Trial Demand
Also before the Court is Defendants’ Motion to Strike Jury Trial
Demand. (Doc # 6.) Defendants insist that Plaintiff is not entitled to a jury trial
because there is no right to a jury trial for ERISA claims. While it is correct that
49
ERISA claims do not entitle a plaintiff to a jury trial, see Borst v. Chevron Corp.,
36 F.3d 1308, 1324 (5th Cir. 1994), not all of Plaintiff’s claims are preempted by
ERISA. Accordingly, the Court denies Defendants’ Motion to Strike Jury Trial
Demand. (Doc. # 6.)
III.
Leave to Amend
Plaintiff requests that “if this Court determines that Plaintiffs’
common law claims are preempted under ERISA,” she be “grant[ed] leave to
amend the complaint pursuant to [Federal Rule of Civil Procedure] 15(a).”
(Resp. at 3–4.) Federal Rule of Civil Procedure 15 states that leave to amend
pleadings “shall be freely given when justice so requires.” In determining whether
to grant leave, “a district court may consider such factors as (1) undue delay; (2)
bad faith; (3) dilatory motive on the part of the movant; (4) repeated failure to cure
deficiencies by any previously allowed amendment; (5) undue prejudice to the
opposing party; and (6) futility of amendment.” Ellis v. Liberty Life Assur. Co. of
Boston, 394 F.3d 262, 268 (5th Cir. 2004).
The Court has found that Plaintiff’s breach-of-contract/wrongful
denial of benefits claim and IIED claim against UHC are preempted by ERISA.
However, it would be futile to amend either claim. First, for the reasons given
above, Plaintiff’s IIED claim fails under Texas law, and IIED claims are not
cognizable under ERISA § 502. Second, while § 502 permits a participant or
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beneficiary to bring a civil action “to recover benefits due to him under the terms
of his plan, to enforce his rights under the terms of the plan, or to clarify his rights
to future benefits under the terms of the plan,” Plaintiff’s counsel conceded at the
hearing that Plaintiff has already received the maximum amount payable under the
Salto Plan—$15,000. Accordingly, the Court can conceive of no additional claim
that Plaintiff could bring under § 502 “to recover benefits” under the plan.
Because amendment would be futile, the Court denies Plaintiff’s request for leave
to amend the Complaint.
CONCLUSION
For the reasons given, the Court GRANTS IN PART AND DENIES
IN PART Paychex’s Motion to Dismiss (doc. # 5) and DENIES Paychex’s
Motion to Strike Jury Trial Demand (doc. # 6).
IT IS SO ORDERED.
DATED: San Antonio, Texas, May 23, 2013.
_____________________________
David Alan Ezra
Senior United States District Judge
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