Meriter Health Services, Inc. v. Godfrey & Kahn, S.C. et al

Filing 99

ORDER granting 25 Motion to Remand; denying as moot 63 Motion to Bifurcate. Signed by District Judge William M. Conley on 11/20/2015. (arw)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
MERITER HEALTH SERVICES, INC.,
Plaintiff,

OPINION AND ORDER

v.
GODFREY & KAHN, S.C., THOMAS HOFFNER,
LAFOLLETTE SINYKIN, LLP, TOWERS WATSON
DELAWARE, INC., TOWERS WATSON
PENNYSLVANIA, INC.,TOWERS WATSON & CO.,
WATSON WYATT WORLDWIDE, INC., TOWERS
PERRIN FORSTER & CROSBY, INC., RICHARD
PEARSON, DAVID CONDER ENDERLE &
SLOAN, INC., GORDON ENDERLE, MMIC
INSURANCE, INC., and FEDERAL INSURANCE
COMPANY,

15-cv-087-wmc

Defendants,
MMIC INSURANCE, INC.,
Cross Claimant,
v.
FEDERAL INSURANCE COMPANY,
Cross Defendant,
MMIC INSURANCE, INC.,
Counter Claimant,
v.
MERITER HEALTH SERVICES, INC.,
Counter Defendant,

and

FEDERAL INSURANCE COMPANY,
Cross Claimant and Counter Claimant,
v.
MMIC INSURANCE, INC.
Cross Defendant and Counter Defendant.

In this civil action, plaintiff Meriter Health Services, Inc. asserts professional
negligence claims against its former lawyers, actuaries and pension plan design
consultants, as well as state law breach of contract and declaratory judgment claims
against two of its liability insurers. (Compl. (dkt. #1-1.).) Defendants removed this
action to this court on the basis of federal question jurisdiction, 28 U.S.C. § 1331. (Not.
of Removal (dkt. #1).) Before the court is plaintiff’s motion to remand. (Dkt. #25.)
For reasons explained more fully below, the court will now grant that motion, finding
that: (1) this malpractice action does not arise out of and is not sufficiently connected
with the settlement of the underlying ERISA class action in which Meriter was the
defendant; and (2) the face of Meriter’s complaint does not present substantial questions
of ERISA law. Accordingly, the court will direct the clerk of court to remand this case to
Dane County Circuit Court.

BACKGROUND
On January 5, 2015, this court approved a class action settlement between Meriter
and its retirement plan beneficiaries. Johnson v. Meriter Health Servs. Emp. Ret. Plan, No.
10-cv-426-wmc (W.D. Wis. Jan. 5, 2015). In the order approving the settlement, the
court, at the request of the parties, stated:
Without affecting the finality of this final order and
judgment, the court retains jurisdiction under the Employee
Retirement Income Services Act of 1974 (“ERISA”), 29
U.S.C. § 1001 et seq., to implement, interpret, and/or enforce
this final order and judgment, the preliminary approval order
and the settlement agreement, the terms of which are
incorporated in this order.

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Johnson, No. 10-cv-426-wmc, slip. op. at *15 (W.D. Wis. Jan. 5, 2015) (dkt. #483).
The following day, Meriter filed its complaint in state court asserting various state
law claims for negligence and breach of fiduciary duties against its actuaries, pension
consultants, attorney, and their respective firms arising out of their respective roles in the
design, implementation and administration of Meriter’s Cash Balance Pension Plan.
Meriter also asserts claims against defendants MMIC and Federal insurance companies
(collectively “Insurance defendants”) for breach of contract in denying coverage.
On February 11, 2015, Towers Watson Delaware, Inc., Towers Watson
Pennsylvania, Inc., Towers Watson & Co., Watson Wyatt Worldwide, Inc., Richard
Pearson, and Gordon Enderle (collectively referred to as the “Towers defendants”) filed a
notice of removal, claiming that this court has original jurisdiction over this matter
pursuant to 28 U.S.C. § 1331, to which the other defendants added their required
consents.

OPINION
Article III, section 2 of the Constitution and 28 U.S.C. § 1331 provide federal
district courts with jurisdiction over cases “arising under the Constitution, laws, or
treaties of the United States.” A cause of action arises under federal law only when
federal law is part of the plaintiff’s “well-pleaded complaint.” Metro. Life Ins. Co. v. Taylor,
481 U.S. 58, 63 (1987). This means that the court looks only at the complaint, not at
asserted defenses, Gully v. First Nat’l Bank, 299 U.S. 109, 113 (1936), or at
counterclaims, Holmes Group, Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826, 831

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(2002). Similarly, the court refers only to the portions of the complaint that are necessary
to sustain plaintiff’s cause(s) of action, not at pleadings that merely anticipate a defense.
Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149, 153 (1908). Moreover, “federal
courts should interpret the removal statute narrowly, resolving any doubt in favor of the
plaintiff’s choice of forum in state court.” Schur v. L.A. Weight Loss Centers, Inc., 577 F.3d
752, 758 (7th Cir. 2009).
As the parties with “the burden of establishing federal jurisdiction,” id., defendants
here assert two principal bases on which this court’s federal subject matter jurisdiction
lies. 1 First, defendants assert that “because this Court had original jurisdiction in the
[u]nderlying ERISA Action and retained jurisdiction over Meriter as to any matter arising
out of or connected with the Settlement, removal is proper under principles of
supplemental jurisdiction, 28 U.S.C. § 1367, and the All Writs Act § 1651.” (Tower
Defs.’ Opp’n (dkt. #41) 3.)

Second, defendants assert that “this case presents

substantial questions of federal ERISA law that must be decided during Meriter’s case in
chief.” (Id.) The court addresses each assertion in turn below.

I. Retained Jurisdiction over Class Action Settlement
The first of defendants’ assertions is baseless.

Contrary to defendants’

characterization, the court did not “retain exclusive jurisdiction over Meriter with respect
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Counsel for the Tower defendants advance these arguments, which the Insurance defendants
expressly (and the other defendants implicitly) adopted. Although the insurance companies also
make a convoluted, separate argument for severance and diversity jurisdiction (dkt. #38 and #40,
respectively), which is addressed later in this opinion, there is plainly not complete diversity
between plaintiff and defendants, as plaintiff and defendant law firm are all Wisconsin citizens.

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to matters arising out of or connected with the Settlement.” (Tower Defs.’ Opp’n (dkt.
#41) 5.) Instead, as quoted above, the court expressly retained jurisdiction over the
implementation, enforcement and interpretation of the settlement agreement. To the
extent exclusive jurisdiction existed at all in that lawsuit, it was because of the claims at
issue. While the opening paragraph of the complaint in this lawsuit references the $82
million settlement, this language simply identifies the source of Meriter’s injury. There is
nothing about this language -- nor any other aspect of this new lawsuit -- that grants this
court subject matter jurisdiction over the present suit. Meriter is on the hook to pay the
$82 million. The source of those funds or how it goes about paying that money is of no
import to the implementation, enforcement or interpretation of the settlement
agreement. Here, plaintiffs’ claims in the complaint not only fail to seek to implement,
enforce, or interpret the settlement agreement, the only jurisdiction the court retained to
do so lies with that lawsuit.
At one point, defendants refer to the possible exercise of supplemental jurisdiction
under 28 U.S.C. § 1367. The exercise of supplemental jurisdiction, however, similarly
concerns “other claims that are so related to the claims in the action within such original
jurisdiction,” it does not extend to other actions. 28 U.S.C. § 1367(a) (emphasis added);
Humphrey v. United States, 787 F.3d 824, 826 (7th Cir. 2015) (rejecting third party’s
post-settlement motion to intervene to assert state law claim; “This federal suit ended
when it was dismissed as part of the settlement. Porter needed an independent basis of
federal jurisdiction in order to continue a post-dismissal battle.”). Even if § 1367 could be
read in a way that favors defendants’ argument, the court may decline to exercise its
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supplemental jurisdiction. Indeed, that is the favored approach in the Seventh Circuit
where the court “has dismissed all claims over which it has original jurisdiction.” 28
U.S.C. § 1367(c)(3); see also Groce v. Eli Lilly & Co., 193 F.3d 496, 501 (7th Cir. 1999)
(“The usual practice is to dismiss without prejudice state supplemental claims whenever
all federal claims have been dismissed prior to trial.”).
In short, the court’s prior adjudication of a class action asserted against Meriter,
its order approving the class action settlement, and its decision to retain its original,
exclusive jurisdiction under ERISA over the settlement in no way forms a basis for this
court exercising jurisdiction over a new lawsuit, much less one concerning state law
malpractice and breach of contract claims for which there is not complete diversity
between the parties.

II. Substantial Federal Issue
While acknowledging that Meriter does not assert federal law claims, defendants
also argue that removal is appropriate because Meriter’s state law claims arise under
federal law. This makes for a novel (though not necessarily fatal) claim to jurisdiction,
since the vast majority of cases “arise[] under federal law when federal law creates the
cause of action asserted.” Evergreen Square of Cudahy v. Wis. Hous. & Econ. Dev. Auth., 776
F.3d 463, 465 (7th Cir. 2015) (quoting Gunn v. Minton, 133 S. Ct. 1059, 1064 (2013)).
The United States Supreme Court has “identified a special and small category of
cases in which arising under jurisdiction still lies” despite the absence of a federal claim.
Id. (quoting Gunn, 133 S. Ct. at 1064). In those cases, “federal jurisdiction over a state
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law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed, (3)
substantial, and (4) capable of resolution in federal court without disrupting the federalstate balance approved by congress.”

Id. (quoting Gunn, 133 S. Ct. at 1065).

The

category of state law claims that fall within these boundaries is “slim,” however, and the
Seventh Circuit cautions that “[t]his inquiry rarely results in a finding of federal
jurisdiction.” Id. (citing Hartland Lakeside Joint No. 3 Sch. Dist. v. WEA Ins. Corp., 756
F.3d 1032, 1033 (7th Cir. 2014)).
Two recent Supreme Court cases -- one finding jurisdiction, the other not -provide helpful guidance in determining whether federal jurisdiction lies in this case. In
particular, these cases help in determining what constitutes a “substantial” federal issue.
In Grable & Sonsmetal Products, Inc. v. Darue Engineering & Manufacturing, 545 U.S. 308
(2005), the Supreme Court held that the suit presented a substantial federal questions
for removal purposes.

In that case, the IRS seized property of Grable to satisfy federal

tax delinquency and then sold it to Darue Engineering & Manufacturing. Id. at 310.
Five years later, Grable brought a quiet title action in state court, claiming that Darue’s
title was invalid because the IRS failed to provide the notice of seizure of property as
required under 26 U.S.C. § 6335(a). Id. at 311.
After reviewing prior cases rejecting an “expansive view” of federal question
jurisdiction resting on the “mere need to apply federal law in a state-law claim,” the
Court reasserted that federal question jurisdiction is limited to those claims that “really
and substantially involv[e] a dispute or controversy respecting the validity, construction
or effect of [federal] law.”

Id. at 313 (alterations in original) (quoting Shulthis v.
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McDougal, 225 U.S. 561, 569 (1921)). With that framework in mind, the Court held
that federal jurisdiction lies because
Whether Grable was given notice within the meaning of the
federal statute is thus an essential element of its quiet title
claim, and the meaning of the federal statute is actually in
dispute; it appears to be the only legal or factual issue
contested in this case. The meaning of the federal tax
provision is an important issue of federal law that belongs in
federal court.
Id. at 315 (emphasis added).
In Gunn v. Minton, 133 S. Ct. 1059 (2013), the Supreme Court held in contrast
that a patent owner’s claim against his attorney for malpractice was not subject to the
jurisdiction of federal courts. Through his attorney, the patent owner, Vernon Minton,
had previously filed a patent infringement action in federal district court.

The

defendants moved for summary judgment on the basis that the patent was invalid.
When the motion was later granted, the patent was naturally invalidated. In denying
Minton’s appeal, the Federal Circuit pointed out, however, that Minton’s attorney had
waived an argument that his use of the patent more than one year before the filing of his
patent application fell within the “experimental use” exception to the “on sale” bar under
35 U.S.C. § 102(b).
Given this bit of encouragement by the Federal Circuit, Minton unsurprisingly
sued his counsel for malpractice on the basis that “his attorneys’ failure to raise the
experimental-use argument earlier had cost him the lawsuit and led to invalidation of his
patent.” Id. at 1063. After the state court granted summary judgment to his attorney,
Minton appealed, arguing in part that his state court action should have been dismissed
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because the malpractice claim was premised on an alleged error in a patent case, and
therefore should have been filed in federal court under 28 U.S.C. § 1338(a). 2 Relying on
Grable and other cases from the Federal Circuit, the Texas Supreme Court agreed that
Minton’s claim involved “a substantial federal issue.” In particular, the court found that
“the success of Minton’s malpractice claim is reliant upon the viability of the
experimental use exception as a defense to the on-sale bar,” making a federal court the
exclusive forum for adjudicating the case. Id.
Ultimately, however, the United States Supreme Court disagreed. Agreeing that
resolution of a federal patent issue was necessary and actually disputed, the Court
nevertheless held that it was not a substantial issue that warranted the exercise of federal
jurisdiction. The Court explained that “[t]he substantiality inquiry under Grable looks
instead to the importance of the issue to the federal system as a whole.” Id. at 1066.
The Court further held that the malpractice claim at issue in Gunn “carries no such
significance.”
Because of the backward-looking nature of a legal malpractice
claim, the question is posed in a merely hypothetical sense: If
Minton’s lawyers had raised a timely experimental-use
argument, would the result in the patent infringement
proceeding have been different? No matter how the state
courts resolve that hypothetical “case within a case,” it will
not change the real-world result of the prior federal patent
litigation. Minton’s patent will remain invalid.

2

While defendants assert that this court has jurisdiction under 28 U.S.C. § 1331, the Supreme
Court has interpreted “the phrase ‘arising under’ in both sections identically, applying [] § 1331
and §1338(a) precedents interchangeably.” Gunn, 133 S. Ct. at 1064.

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Id. at 1066-67. 3
So, too, here. Even if the court were to credit defendants’ argument that the
complaint “raises several questions of federal ERISA law that must be decided in
Meriter’s case-in-chief,” this is not enough under Grable or Gunn to establish a substantial
federal issue.

Instead, Meriter’s claims rest on a backward-looking, hypothetical

question: whether different advice and notice would have changed the Plan and thus
Meriter’s assessment of its liability risks and damages award at the time it settled the
ERISA class action.
As this court noted in Saybrook Tax Exempt Investors, LLC v. Lake of the Torches
Economic Development Corporation, 929 F. Supp. 2d 859 (W.D. Wis. 2013), the small
category of cases giving rise to a substantial issue of federal law, for the most part, involve
a claim presenting a “nearly pure issue of law that is both dispositive of the case and
would be controlling in numerous other cases.” Id. at 862 (quotation marks omitted)
(quoting Empire Healthcare Assurance, Inc. v. McVeigh, 547 U.S. 677, 700 (2006)). Not
only do Meriter’s malpractice and related claims not present a pure issue of federal law,
their resolution will have no precedential impact on federal law going forward. As a
result, the issues presented here are simply not of such significance to the federal
government that this court exercising jurisdiction is warranted.

3

Similarly, the Court found that the exercise of jurisdiction over state law malpractice claims
would upset the “balance of federal and state judicial responsibilities,” citing the states’ “special
responsibility for maintaining standards among members of the licensed professions,” especially
their interest in regulating lawyers. Id. at 1068.

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While it pre-dates Gunn, the Ninth Circuit’s decision in Custer v. Sweeney, 89 F.3d
1156 (9th Cir. 1996), also rejected the very argument posited by defendants here: that
federal jurisdiction lies because “the resolution of Custer’s malpractice claim would
require the district court to make findings as to a number of ERISA-related issues.” Id. at
1168. In Custer, the plaintiff asserted claims against an ERISA plan’s former attorney for
malpractice, among other claims. As in Gunn, the Ninth Circuit looked to the federal
interest at stake and determined that “Custer’s claim does not implicate in any
significant way the federal policies that Congress sought to promote in enacting ERISA.”
Id. at 1169; see also Merrell Dow Pharmaceuticals, Inc. v. Thompson, 478 U.S. 804, 814 n.2
(1986) (federal jurisdiction lies only where the “federal interest at stake” is substantial).
Just as in Custer, defendants here have failed to establish that the ERISA issues raised in
Meriter’s case in chief against its former attorneys and accountants implicate important
federal policies.
Nor is the possibility that this court may have an advantage in deciding the ERISA
issues at play in the malpractice and breach of contract claims, either because of its
familiarity with the Johnson case or because of its general familiarity with ERISA,
sufficient to trigger this court’s jurisdiction.

See Gunn, 133 S. Ct. at 1068 (“[T]he

possibility that a state court will incorrectly resolve a state claim is not, by itself, enough
to trigger the federal courts’ exclusive patent jurisdiction, even if the potential error finds
its root in misunderstanding of patent law.”).
Finally, defendants also attempt to recast plaintiff’s claims as ones for
indemnification and contribution. While damages may go to the amount plaintiff owes
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under the settlement agreement, the complaint reaches well beyond a mere contribution
or indemnification claim in seeking “other damages associated with the design,
implementation and administration of the Meriter Cash Balance Pension Plan initiated
in 1987.” (Compl. (dkt. #1-1) 1.) In any event, defendants fail to point to any support
for their contention that ERISA (rather than the common law) gives rise to an
indemnification claim against a third-party who is not a co-fiduciary of the Plan.

III. Severance of Insurance Company Defendants
As alluded to earlier, the court will briefly address the Insurance defendants
separate opposition to plaintiff’s motion to remand. (Dkt. ##38, 40.) These defendants
argue that plaintiff’s claims for breach of contract and declaratory judgment against them
should be severed and heard by this court on grounds of complete diversity of citizenship
under 28 U.S.C. § 1332(a). There are several problems with this argument. As an initial
matter, the Notice of Removal -- filed by the Towers defendants -- does not mentioned
28 U.S.C. § 1332(a) as a basis for removal. Moreover, neither the complaint nor the
notice of removal alleges the citizenship of Meriter, Federal Insurance Company or
MMIC Insurance Company. Instead, MMIC simply states its citizenship without any
support in its opposition brief.
Even more fundamental than these issues, defendants fail to identify any basis for
this court, lacking subject matter jurisdiction over the action, to sever certain claims and

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only remand others. Whether the claims asserted against the Insurance defendants are
properly severable is an issue for the state court to address in the first instance. 4

ORDER
IT IS ORDERED that:
1) Plaintiff Meriter Health Services, Inc.’s motion to remand (dkt. #25) is
GRANTED. The clerk of court is directed to remand this case to the Dane
County Circuit Court.
2) Defendants’ motion to bifurcate statute of limitations issues and stay further
discovery pending decision on those issues (dkt. #63) is DENIED as moot.
Entered this 20th day of November, 2015.
BY THE COURT:

/s/
__________________________________
WILLIAM M. CONLEY
District Judge

4

On remand, the state court can also address the effect of any purported agreement between
Meriter and MMIC to litigate their coverage disputes in this court.

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