Prince v. Sears Holdings Corporation
Filing
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MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT'S MOTION TO DISMISS: It is ORDERED that Defendant's 3 Motion to Dismiss is GRANTED; Plaintiff's claims are DISMISSED WITHOUT PREJUDICE; and Plaintiff's 12 Motion to Remand to State Court is DENIED. Signed by District Judge John Preston Bailey on 12/21/15. (cnd)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
CLARKSBURG
BILLY E. PRINCE,
individually, and as a personal representative
for the late JUDITH A. PRINCE,
Plaintiff,
v.
Civil Action No. 1:15-cv-6
(BAILEY)
SEARS HOLDINGS CORPORATION,
a Delaware Corporation,
Defendant.
MEMORANDUM OPINION AND ORDER GRANTING
DEFENDANT’S MOTION TO DISMISS
Currently pending before this Court are Defendant Sears Holding Corporation’s
(“Sears”) Motion to Dismiss [Doc. 3], filed on January 23, 2015, and Plaintiff Billy E.
Prince’s (“Prince”) Motion to Remand [Doc. 12], filed on February 16, 2015. Plaintiff filed
a Motion to Remand [Doc. 12] and Response in Opposition to Sears’ Motion to Dismiss in
conjuncture with his Memorandum in Support of his Motion to Remand [Doc. 13] on
February 16, 2015. Sears filed a Reply in Support of its Motion to Dismiss Plaintiff’s
Complaint and in Response to Plaintiff’s Motion to Remand [Doc. 14] on February 23, 2015.
Plaintiff subsequently filed a Reply to Sears’ response [Doc. 15] on March 2, 2015. This
matter is now ripe for decision after having been transferred to this Court on September 22,
2015 [Doc. 17]. For the reasons set forth below, this Court hereby GRANTS Sears’ Motion
to Dismiss [Doc. 3] and DENIES Plaintiff’s Motion to Remand this action to state court
[Doc. 12].
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I. BACKGROUND:
Plaintiff filed the instant Complaint in the Circuit Court of Marion County on
December 17, 2014 [Doc. 1-1]. In the Complaint, Prince notes that he was employed by
Sears as a service technician [Id. at ¶ 1]. While employed by Sears, Prince contends that
he submitted an application for optional life insurance coverage on behalf of Mrs. Prince
through Prudential Insurance Company of America (“Prudential”) for $150,000.00 (the
policy is hereafter referred to as the “Spouse Life policy”) [Id. at ¶ 10]. As part of the
application, Prince filled out a “Short Form Health Statement Questionnaire,” which
Prudential confirmed that it received and sent back to Mrs. Prince by letter dated November
2, 2010 [Id. at ¶ 11].
Prince received no further correspondence regarding the life insurance coverage
until Sears sent him a “Health and Group Benefits Confirmation of Coverage” statement on
May 23, 2011 [Id. at ¶ 12]. This letter reflected “Spouse Life” coverage in the amount of
$150,000, for which Prince paid premiums of $25.50 during each pay period [Id.].
Premiums were withheld from his paycheck for the Spouse Life policy (labeled on the
paycheck as “SHC Term”) beginning on June 10, 2011 and continuing through September
27, 2013 [Id. at ¶ 13]. On October 6, 2011, while having her gall bladder removed, Mrs.
Prince was diagnosed with Stage IV liver cancer [Id. at ¶ 14].
On October 18, 2012, Prince accessed his online Sears benefits summary and
confirmed that the Spouse Life policy was “in effect as of January 1, 2013" [Id. at ¶ 15]. On
September 23, 2013, Prince received an “Account Update Notice” from Sears dated
September 16, 2013, which advised:
“[d]uring a recent system audit, it was discovered that Optional Spouse Life
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Insurance was applied to your account without the proper Statement of
Health approval. Statement of Health (also known as Evidence of
Insurability) approval from the insurance carrier is required for certain
increases in coverage. Because the insurer does not have record of an
approved Statement of Health, your Optional Spouse Life Insurance has
been reduced to the coverage in force prior to the increase. Premiums taken
for the increased coverage amount will be refunded to you via payroll as
soon as administratively possible.”
[Id. at ¶ 16]. After Prince objected to the coverage termination, Sears responded by stating
that it had sent him a letter on January 1, 2011, advising him that it had stopped processing
his application for life insurance coverage because he had not completed a long form
Evidence of Insurability questionnaire [Id. at ¶ 18]. Prince claims that he did not receive the
January 2011 letter, and had no knowledge that his application was denied until he
received the September 2013 letter [Id. at ¶ 19].
Mrs. Prince passed away on May 16, 2014, and Prince was named executor of his
wife’s estate on June 6, 2014 [Id. at ¶¶ 3 and 20]. Prince has since filed the instant action
against Sears, “not as a beneficiary challenging a coverage decision made concerning the
Prudential life insurance plan or seeking benefits therefrom, but rather seeking damages
against Sears . . . for its [alleged] tortious conduct which may be measured . . . by the
amount of coverage afforded by the Prudential plan” [Id. at ¶ 21]. As such, Prince alleges
causes of action sounding in Constructive Fraud/ Negligent Misrepresentation (“negligent
misrepresentation claim”) and Intentional/Reckless Infliction of Emotional Distress (“IIED
claim”), and seeks both compensatory and punitive damages [Id. at ¶¶ 22-34].
Sears removed this action on January 16, 2015, pursuant to 28 U.S.C. §§ 1441 and
1446 because this case involves federal question jurisdiction [Doc. 1 at ¶¶ 1-3]. In so
removing, Sears notes that “Plaintiff’s Complaint is predicated on the alleged termination
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and/or denial of dependent life benefits under a life insurance plan sponsored by Sears,”
which constitutes an employee welfare benefit plan for the purposes of ERISA. As such,
they contend that because Plaintiff seeks to recover benefits due to him under the plan, this
action is properly before this Court [Id. at ¶¶ 4-5]. Sears further contends that because
Prince’s cause of action is based on the denial of dependent life insurance benefits
allegedly due to him, those claims are completely preempted by ERISA per the terms of
29 U.S.C. § 1441(a) and the Supreme Court’s holding in Aetna Health Inc. v. Davila, 542
U.S. 200, 209 (2004) (noting that, “. . . any 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”).
Sears contends applicable Fourth Circuit case law counsels in favor finding that Prince’s
claims are completely preempted [Id. at ¶¶ 6-11; citing Smith v. Logan, 363 F. Supp. 2d
804, 809 (E.D. Va. 2004) (contending that Prince’s claims meet the Fourth Circuit’s
complete preemption test); see also Powell v. Chesapeke and Potomac Telephone Co.
of Virginia, 780 F.2d 419, 421 (4th Cir. 1985) (contending Prince’s breach of fiduciary
duties claims are also completely preempted by ERISA)].
Shortly after removing this action, Sears filed the instant Motion to Dismiss [Doc. 3].
In support of that Motion, Sears contends that Prince’s claims should be dismissed
pursuant to F. R. Civ. P. 12(b)(6), because, while they are labeled as state law claims, they
should be completly preempted by ERISA. Prince filed a Motion to Remand [Doc. 12] and
Response in Opposition to Sears’ Motion to Dismiss in conjuncture with his Memorandum
in Support of his Motion to Remand [Doc. 13] on February 16, 2015. In his Response,
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Prince contends that this action must be remanded to the Circuit Court of Marion County,
pursuant to 28 U.S.C. § 1447(c), as his claims are not preempted by ERISA [Doc. 12 at 1].
He further argues that because the removal of this action was improper, he is entitled to
attorneys’ fees and costs incurred “fighting” the improper removal of this action [Id.]. Sears
filed a Reply in Support of its Motion to Dismiss Plaintiff’s Complaint and in Response to
Plaintiff’s Motion to Remand (“Response”) [Doc. 14] on February 23, 2015. In its Reply,
Sears reiterates many of the same arguments that it made in its Motion to Dismiss, and
again asserts that Prince’s state law claims are preempted by the “broad force” of ERISA
[Id. at 1]. Prince subsequently filed a Reply to Sears’ response [Doc.15] on March 2, 2015.
In that Reply, he asserts that “[w]hen fairly applying the Fourth Circuit’s three-pronged
complete preemption test to the claims/facts asserted in this action, and resolving any
doubts against removal, it is clear that remand is necessary because Plaintiff’s claims are
not enforceable under § 502(a) of ERISA . . ..” [Id. at 8]. The arguments made in those
various motions will be discussed in greater detail below.
II. LEGAL STANDARD:
A.
Removal Jurisdiction Generally:
In general, an action filed in state court may be removed to federal court only if it
could have been brought in federal court originally. See 28 U.S.C. § 1441; see also
Darcangelo v. Verizon Communications, Inc., 292 F.3d 181, 186 (4th Cir. 2002). District
courts have original jurisdiction over “federal question” cases: ones which present a claim
“arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331.
A cause of action “arises under” federal law where the plaintiff’s well-pleaded
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complaint raises issues of federal law. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58,
63 (1987) (citing Gully v. First N. Bank, 299 U.S. 109 (1936)). The “well-pleaded
complaint rule” demarcates the boundaries of district courts’ federal question jurisdiction;
under the rule, courts ordinarily look no further than the face of the plaintiff’s complaint in
determining whether federal question jurisdiction exists.
Franchise Tax Bd. v.
Construction Laborers Vacation Trust, 463 U.S. 1, 8–9 (1983). One corollary to the
well-pleaded complaint rule, however, converts an ordinary state common law complaint
into one stating a federal claim: the doctrine of complete preemption. Congress may so
completely preempt a particular area that any state complaint raising a claim in that area
is deemed federal in character. Taylor, 481 U.S. at 63–64.
B.
Motion to Dismiss:
A complaint must be dismissed if it does not allege “‘enough facts to state a claim
to relief that is plausible on its face.’ Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1974
(2007) (emphasis added).” Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008).
When reviewing a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure, the Court must assume all of the allegations to be true, must resolve all doubts
and inferences in favor of the plaintiffs, and must view the allegations in a light most
favorable to the plaintiffs. Edwards v. City of Goldsboro, 178 F.3d 231, 243-44 (4th Cir.
1999).
When rendering its decision, the Court should consider only the allegations
contained in the Complaint, the exhibits to the Complaint, matters of public record, and
other similar materials that are subject to judicial notice. Anheuser-Busch, Inc. v.
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Schmoke, 63 F.3d 1305, 1312 (4th Cir. 1995). In Twombly, the Supreme Court, noting
that “a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more
than labels and conclusions, and a formulaic recitation of the elements of a cause of action
will not do,” Id. at 1964-65, upheld the dismissal of a complaint where the plaintiffs did not
“nudge[ ] their claims across the line from conceivable to plausible.” Id. at 1974.
III. DISCUSSION:
A.
ERISA’s Complete Preemptive Power Post-Aetna Health:
As is clear from the parties’ briefs on the matter, the central issue in considering this
Motion to Dismiss is whether Prince’s claims are preempted by ERISA. Before considering
that issue, it is necessary to briefly discuss the ERISA statutory scheme. ERISA was
enacted to “protect . . . the interests of participants in employee benefit plans and their
beneficiaries” by regulating employee benefit plans and to “provid[e] for appropriate
remedies, sanctions, and ready access to the Federal courts.” 29 U.S.C. § 1001(b); see
also Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 137 (1990) (noting that ERISA is
a “closely integrated regulatory system” that is “designed to promote the interests of
employees and their beneficiaries in employee benefit plans”). ERISA is a comprehensive
statute: it not only sets forth a unified regulatory scheme, but also contains a civil
enforcement mechanism which empowers any ERISA-plan beneficiary to bring suit for
recovery of benefits, enforcement of rights, or clarification of rights to future benefits under
his insurance plan. ERISA § 502(a), 29 U.S.C. § 1132(a).
Section § 502 has “extraordinary pre-emptive power”; the Supreme Court has held
that causes of action falling within its scope are completely preempted, as § 502 is meant
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to ensure “that employee benefit plan regulation [will] be ‘exclusively a federal concern.’”
Aetna Health Inc. v. Davila, 542 U.S. 200, 208-210 (2004) (quoting Metropolitan Life Ins.
Co. v. Taylor, 481 U.S. 58, 65 (1987); Alessi v. Raybestos-Manhattan, Inc., 451 U.S.
504, 523 (1981)). As Justice Thomas wrote in the Aetna Health opinion, the test for
whether ERISA preemption applies is to look whether, “any state law cause of action that
duplicates, supplements, or supplants the ERISA civil enforcement remedy with the clear
congressional intent to the make the ERISA remedy exclusive and is therefore preempted.”
Id. at 209. Moreover, “if an individual brings suits complaining of a denial of coverage . .
. where the individual is entitled to such coverage only because of the terms of an ERISAregulated employee benefit plan, and where no legal duty (state or federal) independent
of ERISA or the plan terms is violated, then the suit falls ‘within the scope of’ ERISA §
502(a)(1)(B).” Id. at 211. Thus, where a complaint contains state claims that fall within the
scope of § 502, those claims are converted into federal claims, rendering the action
removable to federal court.
Taylor, 481 U.S. at 66–67; Darcangelo v. Verizon
Comm’cns, Inc., 292 F.3d 181, 187 (4th Cir. 2002) (citing Taylor).
The Fourth Circuit articulated a three-part ERISA preemption test in Sonoco
Products Co. v. Physicians Health Plan, Inc., 338 F.3d 366 (4th Cir. 2003), which this
Court will apply to the facts of this case. See Deem v. BB&T Corp., 2007 WL 1848033
(S.D. W.Va. June 25, 2007) (Judge Goodwin notes in that decision that the Supreme
Court’s Aetna Health test and the Fourth Circuit’s Sonoco test are “similar” and applied
that test). First, this Court must determine whether the plaintiff had standing to bring an
ERISA claim. Sonoco Products Co., 338 F.3d at 372. Next, that claim must “fall within
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the scope of an ERISA provision that [the plaintiff] can enforce via § 502(a).” Id. Finally,
this claim must not be capable of resolution “without an interpretation of the contract
governed by federal law.” Id. This Court will apply that three-pronged test to the facts of
Prince’s case.
B.
Prince’s Claims are Preempted by ERISA:
a. Prince Had Standing to File his Claims under ERISA:
First, this Court will determine whether Prince had standing to bring his claims under
the ERISA statutory scheme. An individual has standing to bring a claim under ERISA if
he or she is or was a participant in the plan. Deem, 2007 WL 1848033 at *3. Here, a
participant is defined as, “any employee or former employee of an employer who is or may
become eligible to receive a benefit of any type from an employee benefit plan which
covers employees of such employer.” 29 U.S.C. § 1002(7). As Prince readily admits in the
Complaint, he was employed by Sears as a service technician [Doc. 1-1 at ¶ 1]. Prince
admits that while employed by Sears, he submitted an application for the Spouse Life policy
at issue in this case [Id. at ¶ 10]. In his Response, Prince further admits that he “is a
participant in a Prudential plan sponsored by Sears with respect to his own life insurance
coverage” [Doc. 13 at 5]. However, he also argues in that Response that because the
Policy at issue purportedly never became effective, he may not have standing to assert an
ERISA claim [Id.].
Prince’s arguments miss their mark, as he clearly had standing to bring the instant
claim under ERISA. As he admitted in his Complaint, Prince was a Sears employee at all
times relevant to this action [Doc. 1-1 at ¶ 1]. Whether the plan was actually effective is
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inconsequential to determine whether he had standing to bring an ERISA claim, per the
plain language of 29 U.S.C. § 1002(7), which is cited above. Because Prince was an
employee of Sears and was eligible to receive benefits under the Spouse Life Policy, his
arguments fail given that he had standing to file the instant claim under the ERISA statutory
scheme.
b. Prince’s Claims are Enforceable Under § 502(a) of ERISA:
Next, this Court must determine whether Prince’s claims against Sears “fall within
the scope of an ERISA provision that [the plaintiff] can enforce via § 502(a)[, 29 U.S.C.
1132(a)].” Sonoco Products Co., 338 F.3d at 372. As United States District Judge
Frederick P. Stamp, also of the Northern District of West Virginia, noted: “where a putative
state law claim relates to an employee benefit plan and falls within the scope of § 502(a),
such claims . . . are subject to complete preemption . . . under ERISA.” RG Steel
Wheeling, LLC v. Health Plan of the Upper Ohio Valley, Inc., 2014 WL 3845215 at *7
(N.D. W.Va. Aug. 5, 2014).
As such, this Court will analyze Prince’s negligent
misrepresentation and IIED claims to determine whether they are enforceable under
ERISA’s § 502(a). See Deem, 2007 WL 1848033 at *2-3.
Here, Sears contends that Prince could have brought this claim under
§ 502(a)(1)(B), because that provision allows for civil actions to be brought, “by a
participant . . . to recover benefits due to him under the terms of the plan, to enforce his
rights under the terms of the plan, or to clarify his rights to future benefits due to him under
the terms of the plan” [Doc. 4 at 8; citing 29 U.S.C. § 1132(a)(1)(B)]. Prince counters by
arguing that he does not seek benefits or rights due to him under the terms of the plan, but
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instead seeks recourse for Sears’ purported misrepresentations made to him regarding the
Spouse Life Plan [Doc. 13 at 6]. He further argues that because his claims do not “concern
the terms of the Prudential plan . . . he could not have brought these claims pursuant to
§ 502(a)” [Id.].
Prince’s contentions are misplaced, as he clearly seeks redress for benefits which
allegedly existed or were due to him under an employee benefit plan. First, applicable
Fourth Circuit precedent explicitly preempts Prince’s negligent misrepresentation claim:
“ERISA preempts state common law claims of fraudulent or negligent misrepresentation
when the false representations concern the existence of benefits under an employee
benefit plan. In fact, ERISA preemption is commonly understood to apply to state common
law claims that an ERISA fiduciary misrepresented the nature or availability of . . . benefits
. . ..” Griggs v. E.I. DuPont de Nemours & Co., 237 F.3d 371, 378 (4th Cir. 2001)
(citations omitted). Similarly, in Conner v. Elkem Metals Co., 2008 WL 5122197 (S.D.
W.Va. Dec. 5, 2008), United States District Judge Thomas Johnston of the Southern
District of West Virginia found that where a plaintiff’s negligent misrepresentation claim was
entirely premised upon the purported existence of a pension-retirement plan, that claim was
preempted by ERISA. It is clear from this case precedent that Prince can and must file his
negligent misrepresentation claim pursuant to the statutory scheme set forth in § 502(a).
Even if Prince’s negligent misrepresentation claim was not explicitly preempted by
Griggs, both that claim and his IIED claim “fall within the scope of an ERISA provision that
[the plaintiff] can enforce via § 502(a),” because of the character of those claims. Sonoco
Products Co., 338 F.3d at 372. “When a state law claim may be fairly viewed as an
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alternative means of recovering benefits allegedly due under ERISA, there will be
preemption.” Gresham v. Lumbermen’s Mut. Cas. Co., 404 F.3d 253, 258 (4th Cir.
2005); citing Aetna Health, 542 U.S. at 209. Here, Prince seeks to recover benefits due
under ERISA, because his claims are predicated upon the existence of the Spouse Life
policy at issue. For example, in his Complaint, he seeks the exact amount purportedly due
to him under the $150,000 life insurance policy [Doc. at ¶ 28, “Plaintiff’s damages truly
became realized on May 26, 2014, when Mrs. Prince passed – without the $150,000 life
insurance coverage”].
While Prince contends that his claims “do not hinge on the
provisions of an ERISA plan,” the language of the Complaint, cited above, clearly
undermines this contention. How a given plaintiff “denominates his claim,” or damages,
“does not determine whether it is within the scope of § 502(a).” Warren, Jr. v. Blue Cross
and Blue Shield of South Carolina, 129 F.3d 118 (4th Cir. 1997) (citations omitted). All
of Prince’s claims arise out of Sears’ alleged improper conduct in administering or
effectuating the Spouse Life policy. No matter the guise given to those claims in the
Complaint, they clearly are enforceable under § 502(a) of ERISA.
As an additional matter, Prince argues that this case is analogous to Tovey v.
Prudential Ins. Co. of Amer., 42 F.Supp.2d 919 (W.D. Mo. 1999), and that this Court
should adopt the Tovey Court’s reasoning to find that his claims are not preempted by
ERISA [Doc. 13 at 7-8]. While the Tovey Court utilized a test similar to the Fourth Circuit’s
to find that the plaintiff’s negligent misrepresentation claims therein were not preempted by
ERISA, his reliance on that case here is misplaced. Not only was this case decided before
Aetna Health, but that decision has also been seriously called into question. See Graham
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v. Hubbs Mach. and Mfg., Inc., 49 F.Supp.3d 600, 612 (E.D. Mo. 2014) (noting that since
Tovey was decided, “the Eighth Circuit has since plainly distinguished between the two
types of preemption under ERISA,” as have the circuit courts cited by the Tovey court).
In short, this Court declines to follow the Tovey rationale, as it is a clear outlier in the realm
of ERISA preemption.
Finally, Prince’s reliance on Pizlo v. Bethlehem Steel Corp., 884 F.2d 116 (4th Cir.
1989), is similarly misplaced. In that case, the Fourth Circuit found that state law claims
for breach of contract, promissory estoppel, and negligent misrepresentation were not
preempted by ERISA. Id. at 120-121. The Court’s rationale indicated that they allowed
those claims to proceed because, “the claims do not bring into question whether plaintiffs
are eligible for plan benefits, but whether they were wrongfully terminated from employment
after an alleged oral contract of employment for a term.” Id. Crucially, it did not turn on
eligibility for ERISA plan benefits, but rather whether those plaintiffs were entitled to
damages for a cause of action that did not involve an ERISA plan. As such, this Court
concludes that Pizlo is also easily distinguishable from Plaintiff’s claims.
c. Prince’s Claims Require an Interpretation of ERISA:
Finally, Prince’s claims must not be capable of resolution “without an interpretation
of the [insurance] contract governed by [ERISA].” Sonoco Products Co., 338 F.3d at 372.
If there is an “independent legal duty implicated by [Sears’] actions,” then the “independent
legal duty removes the case from ERISA’s preemptive scope.” Radcliff v. El Paso. Corp.,
377 F.Supp.2d, 558, 563-564 (S.D. W.Va. July 20, 2005). Here, for the reasons stated
more fully above, it is clear that Prince’s claims require an interpretation of both the Spouse
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Life Policy itself and the procedures necessary to effectuate that policy. If this Court were
to allow Prince’s claims to proceed, then it would need to determine evidence of insurability
requirements were satisfied as to the Spouse Life Policy, and whether the 2011 decision
to suspend the plan was proper. As such, no independent legal duty is implicated here,
and Prince’s claims are preempted by ERISA.
IV. CONCLUSION
For the foregoing reasons, it is clear that Prince’s claims must be dismissed by this
Court without prejudice. This Court finds that because Prince’s stated causes of action
“duplicate, supplement, or supplant the ERISA civil enforcement remedy,” those claims are
completely preempted by ERISA. See Aetna Health Inc. v. Davila, 542 U.S. at 209. As
such, Prince must first exhaust the administrative remedies available to him under the
ERISA statutory scheme before re-filing any related action.
This Court finds that the Defendant Sears’ Motion to Dismiss [Doc. 3] should be,
and hereby is GRANTED, and Plaintiff’s claims are hereby DISMISSED WITHOUT
PREJUDICE. Additionally, Plaintiff’s Motion to Remand to State Court [Doc. 12] is
DENIED.
It is so ORDERED.
The Clerk is directed to transmit copies of this Order to all counsel of record herein.
DATED: December 21, 2015
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