Garner v. Sedgwick Claims Management Services et al
Filing
19
MEMORANDUM DECISION and Order Addressing Motion to Remand- granting 11 Motion to Remand to State Court. See Order for details. Signed by Judge David Sam on 9/10/12. (jmr)
THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
NORTHERN DIVISION
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
JAMES GARNER,
)
Plaintiff,
Case No. 1:12CV00107 DS
)
vs.
)
)
SEDGWICK CLAIMS MANAGEMENT
SERVICES, INC, ET AL.,
)
Defendants.
MEMORANDUM DECISION
AND ORDER ADDRESSING
MOTION TO REMAND
)
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
I.
INTRODUCTION
Mr. Garner was employed by Alliant Techsystems, Inc. (“ATK”)
in its Clearfield, Utah office.
After he was injured and stopped
working, Mr. Garner received short-term disability benefits from
ATK until a determination that he was no longer qualified to
receive benefits because his impairment no longer prevented him
from performing his job. Mr. Garner filed an administrative appeal
with ATK’s Short-Term Disability Plan (the “Plan”) which was
denied.
This litigation followed.
Mr. Garner filed his lawsuit in state court.
Defendants
removed the matter to this court on the basis that the claims at
issue are preempted by federal law, specifically the Employee
Retirement Income Security Act of 1974 (“ERISA”).
Mr.
Garner has
filed a motion to remand (Doc. #11) asserting that the Plan is
exempted from ERISA preemption.
For the reasons that follow, the
motion to remand is granted.
II DISCUSSION
ERISA
regulates
“employee
welfare
benefit
plans,”
which
include plans that provide employees “benefits in the event of
sickness.” 29 U.S.C. § 1002(1).
ERISA displaces or preempts all
state laws within its sphere.
Metropolitan Life Ins. Co. v.
Massachusetts, 471 U.S. 724, 739 (1985).
Labor
regulations
exclude
certain
However, Department of
payroll
practices
from
the
application of ERISA.
[T]he terms “employee welfare benefit plan” and “welfare
plan” shall not include ... (2)Payment of an employee’s
normal compensation, out of the employer’s general
assets, on account of periods of time during which the
employee is physically or mentally unable to perform his
or her duties, or is otherwise absent for medical
reasons....
20 C.F.R. § 2510.3-1(b).
It is undisputed that the Plan provides for basic disability
benefits covering 80% of an employee’s pre-disability income,
provided to the employee without charge and paid from ATK’s general
assets.
“Buy-up”
or
self-insurance
coverage,
providing
the
remaining 20% of an employee’s pre-disability income, also is
available to an employee as an option with the employee paying the
full cost of the insurance coverage through payroll deductions.
Mr. Garner purchased the additional disability insurance coverage.
2
The dispute between the parties relates to how the benefits
are funded.
Mr. Garner’s position is that because the Plan
provides compensation for an employee unable to perform his or her
duties
due
to
physical
or
mental
illness,
and
because
the
compensation is paid from the general assets of ATK, it is a
payroll practice and excluded from ERISA coverage.
Defendants, on
the other hand, assert that “a payroll practice exists only where
all benefits are paid out of an employer’s general assets and only
from the general assets.” Mem. Opp’n at 7.1
The question presented is whether the Plan is a payroll
practice exempt from ERISA, or whether the Plan is an ERISA
regulated plan because Mr. Garner
purchased, at his or her option
and expense through payroll deductions, insurance equaling the
1
See McMahon v. Digital Equip Corp., 162 F.3d 28, 37 (1st
Cir. 1998) (“where, as here, an employer partially funds a plan
from sources outside of its general assets files documents with the
Department of Labor and the IRS consistent with the plan’s ERISA
status, and informs employees that the plan is subject to ERISA
regulation, we find that the plan is an ERISA plan and not a
payroll practice”).
3
remaining 20% of his pre-disability income.
Defendants have the
burden of proof.2
Ample authority supports the conclusion that a plan paying 80%
of
earnings
entirely
from
the
employer’s
general
assets
to
employees unable to work due to physical or mental disability fits
within 29 C.F.R. § 2510.3-1(b)(2) as a payroll practice exempt from
ERISA.
Tex.
See, e.g., Butler v. Bank of Am., 2008 WL 1848426 (N.D.
April
21,
2008)(and
authority
cited
therein)(disability
payments out of the general assets of employer equal to 75% of
employee’s normal compensation for period of time when employee
cannot work due to medical reasons is a payroll practice exempt
from ERISA).
The
Department
of
Labor,
the
administrative
agency
with
expertise over the enforcement of ERISA matters, takes the position
that to the extent that short term disability payments were made
2
The party invoking the court’s removal jurisdiction has the
burden to establish the court’s jurisdiction. Laughlin v. Kmart
Corp., 50 F. 3d 871, 873 (10th Cir.), cert. denied, 516 U.S. 863
(1995). Because federal courts are courts of limited jurisdiction,
the law imposes a presumption against federal jurisdiction. Basso
v. Utah Power & Light Co., 495 F.2d 906, 909 (10th Cir. 1974). The
court must resolve any doubts in favor of remand. Fajen v. Found.
Reserve Ins. Co., 683 F.2d 331, 333 (10th Cir. 1982). The court is
required to remand “[i]f at any time before final judgment it
appears that the district court lacks subject matter jurisdiction.”
28 U.S.C. § 1447(c). See also Havey v. Tenneco, 2000 WL 198445, *8
(N.D. Ill. Feb. 11, 2000)(citing Zavora v. Paul Revere Life Ins.
Co., 145 F.3d 1118, 1120 n.2. (9th Cir. 1998)(“[t]he burden is on
the party claiming that an ERISA plan exists to show that the
benefit plan is an ERISA plan”).
4
from the general assets of the employer and such payments “either
equal, or represent a significant portion of, an employee’s normal
compensation,” then the Department of Labor will conclude the plan
constitutes an employer “payroll practice” within the meaning of
regulation section 2510.3-1(b)(2). Dept. of Labor Advisory Op. No.
93-27A, 1993 WL 421012, *6
(Oct. 12, 1993).3
Defendant’s, who as noted have the burden of proof, have
offered no conclusive authority for their position.4
The Court
notes with concern that under ATK’s position, if Mr. Garner had
received only
the standard company provided benefits equaling 80%
3
See Bassiri v. Xerox Corp., 463 F3d 927, 931 (9th
Cir.20060)(citing Auer v. Robbins, 519 U.S. 453, 461 (1997))(“where
an agency interprets its own regulation even if through an informal
process, its interpretation of an ambiguous regulation is
controlling under Auer unless ‘plainly erroneous or inconsistent
with the regulation’”).
4
Defendants’ reliance on McMahon, see note 1, is misplaced.
That case is offered
for the proposition that if the employer
funds a plan from sources other than its general assets, it is not
a payroll practice.
Here it is not the employer paying for
disability benefits from sources other than its general assets. It
is undisputed that benefits equaling 80% of an employees predisability compensation comes from ATK’s general assets and only
from those assets. However, the remaining 20% of pre-disability
income insurance Mr. Garner received was purchased at his direction
and at his expense. It is self-insurance. It was not funded by
ATK from sources other than its general assets.
Likewise, Defendants reliance on Marshall v. Whirlpool Corp,
No. 07-CV-534-JHP, 2009 WL 1939922 (N.D. Okla. July 6, 2009) and
Dept. of Labor Advisory Op. No. 93-02A, 1993 WL 68525 (Jan. 12,
1993), is also misplaced. Those authorities simply support the
proposition that where the facts or representations are that
disability benefits are paid entirely from the general assets of
the employer, the plan is a payroll practice.
5
of his pre-disability income from the general assets of ATK, rather
than opting to “buy-up” at his own expense insurance coverage
paying him the remaining 20% of his pre-disability income, there
would be no dispute that the Plan would be a payroll practice
exempt from ERISA.
Defendants’ position that because Mr. Garner
exercised his option to “buy-up” at his expense insurance providing
him the additional 20% of his pre-disability income, does not
without persuasive authority, in the Court’s view, change the
essential character of the Plan such that it can
a payroll practice.
not be considered
Were the Court to decide otherwise, the Plan
would be subject to ERISA regulation if an employee purchased the
optional 20% insurance coverage, but exempt from ERISA if the
employee makes no “buy-up”.
Such a situation would be untenable
for the Plan and has no rational relationship to why ERISA was
enacted.
See
Massachusetts
v.
Morash,
490
U.S.
107,
112-113
(1989)(ERISA was passed by Congress with the intent of safeguarding
employees from the abuse and mismanagement of funds that had been
accumulated to finance various types of employee benefits).
Such
does not appear to be a concern here.
Defendants’ also contend that the Plan should not be treated
as a payroll practice because benefits “do not cease when an
employee ends employment with ATK”,
Opp’n at 9, and, therefore,
the
ordinary
program
is
not
analogous
to
6
wages
or
salary.
Defendants’ position is rejected.5
Short term disability payments
to replace lost wages clearly is analogous to ordinary salary or
wages.
Finally,
regulation
ATK
urges
because
“it
that
is
the
part
of
Plan
a
is
subject
larger,
to
ERISA
ERISA-regulated
benefits program” and because “it is represented to employees and
the government as being subject to ERISA”.
position
is
also
rejected.
As
Mem. Opp’n at 10.
ATK
acknowledges,
That
the
characterization of a plan, given it by an employer is but one of
many considerations in determining ERISA coverage and is not
dispositive.
The mere labeling or description of a plan by an employer
is not determinative as to whether a plan is governed by
ERISA. Langley [v. DiamlerChrysler Corp.], 502 F.3d at
481 [6th Cir. 2007]; Stern v. Int’l Business Machines
Corp., 326 F.3d 1367, 1374 (11th Cir. 2003).
If an
employer’s labeling of a plan was held to be dispositive
on the issue, employers would be permitted to “engage in
regulation shopping” and could “convert an otherwise
exempt benefit into one covered under ERISA”. Langley,
502 F.3d at 481.
Rather than giving employers this
unchecked power to determine the applicability of ERISA
by simply attaching a label, courts look to how the plans
in question are funded.
See Id.; Stern, 326 F.3d at
1373-4; McMahon [v. Digital Equipment Corp.], 162 F. 3d.
at 38 [1st Cir. 1998].
5
ATK’s statement is not entirely accurate. As quoted by it,
the Summary Plan Description provides: “If your employment with ATK
ends involuntarily while you are receiving STD benefits, your STD
benefits will continue as long as you continue to be Disabled and
you have not exhausted your Maximum Benefits Period.” Mem. Opp’n
at 9. What ATK does not state is that STD benefits end as of the
date an employee voluntarily terminates employment.
See Mem.
Opp’n, Ex. C at 12.
7
Marshall v. Whirlpool Corp., 2009 WL 1939922 at *5.
III.
CONCLUSION
Because Defendants have failed in their burden to establish
the court’s jurisdiction, and more specifically to establish that
ATK’s Plan is an ERISA regulated plan, rather than a payroll
practice exempt from ERISA, the Court concludes that Mr. Garner’s
Motion to Remand this matter to the state court from which it was
removed (Doc. #11), must be granted.
IT IS SO ORDERED.
DATED this 10th day of September, 2012.
BY THE COURT:
DAVID SAM
SENIOR JUDGE
UNITED STATES DISTRICT COURT
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