Conn Feamster v. Mountain State BC&BS, No. 11-2256 (4th Cir. 2013)
Annotate this CaseThis opinion or order relates to an opinion or order originally issued on December 28, 2012.
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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 11-2256 CONN FEAMSTER; SANDRA FEAMSTER; JOHN DOES 1-25, Plaintiffs - Appellants, v. MOUNTAIN STATE BLUE CROSS & BLUE SHIELD, INCORPORATED; RELATIONAL MANAGEMENT SERVICES, LLC; HIGHMARK WEST VIRGINIA INCORPORATED, doing business as Mountain State Blue Cross & Blue Shield; SOLACIUM HOLDINGS, LLC; L. JAY MITCHELL; BART MITCHELL; CHERYL MITCHELL; SHARON FINDLAY, Defendants - Appellees. Appeal from the United States District Court for the Southern District of West Virginia, at Parkersburg. Joseph R. Goodwin, Chief District Judge. (6:10-cv-00241) Argued: October 24, 2012 Decided: December 28, 2012 Before DAVIS and FLOYD, Circuit Judges, and Catherine C. EAGLES, United States District Judge for the Middle District of North Carolina, sitting by designation. Affirmed by unpublished opinion. Judge Davis wrote the opinion, in which Judge Floyd and Judge Eagles joined. ARGUED: Roy Franklin Harmon, III, HARMON & MAJOR, PA, Greenville, South Carolina, for Appellants. Sara Ellen Hauptfuehrer, STEPTOE & JOHNSON, PLLP, Bridgeport, West Virginia, for Appellees. ON BRIEF: Jeffrey V. Mehalic, LAW OFFICES OF JEFFREY W. MEHALIC, Charleston, West Virginia, for Appellants. Jan L. Fox, STEPTOE & JOHNSON PLLC, Charleston, West Virginia, for Appellees Relational Management Services, LLC, L. Jay Mitchell, Bart Mitchell, Cheryl Mitchell, and Sharon Findlay; Erin E. Magee, Richard G. Ford, Jr., JACKSON KELLY PLLC, Charleston, West Virginia, for Appellee Solacium Holdings, LLC; Jill E. Hall, BOWLES RICE MCDAVID GRAFF & LOVE LLP, Charleston, West Virginia, Robert J. Kent, BOWLES RICE MCDAVID GRAFF & LOVE LLP, Parkersburg, West Virginia, for Appellee Highmark West Virginia Incorporated. Unpublished opinions are not binding precedent in this circuit. 2 DAVIS, Circuit Judge: This dispute arises from the failure of Relational Management Services, LLC ( RMS ) to provide continuation health care coverage Reconciliation under Act of the 1985 Consolidated ( COBRA ) to Omnibus one of Budget its former employees, Sandra Feamster, and her husband, Conn Feamster ( the Feamsters ). Appellees include RMS, Mountain State Blue Cross & Blue Shield, and several other individuals and entities affiliated with RMS and its health-plan provider (collectively, Appellees ). The Feamsters were denied COBRA coverage because Appellees claimed that RMS was a small employer of fewer than 20 employees, and was thus not obligated to provide it. issue on appeal is whether RMS and Solacium The key Holdings, LLC ( Solacium ) should have been considered a single employer in 2007; if so, the employer had 20 or more employees, obligating it to provide COBRA coverage. For the reasons that follow, we hold that even if RMS and Solacium were a single employer for a portion of 2007, they were not a single employer on a typical business day during that year, as prescribed by 29 U.S.C. § 1161(b). Accordingly, we affirm the district court s grant of summary judgment to Appellees. 3 I. A. We begin by providing some background on the complicated network of business entities involved in this case. RMS was formed in 2005 to operate a therapeutic boarding school for teenagers in West Virginia. Ann Mitchell Family RMS s sole member was the Teri Irrevocable Trust ( the Family Trust ). Teri Ann Mitchell is married to L. Jay Mitchell, RMS s founder. The Family Trust also held a controlling membership interest in TAS Development, LLC, which organized TAS Greenbrier Properties, LLC. option TAS Greenbrier Properties, LLC, entered into a lease and to founders purchase also property established Greenbrier Trust ). the for the school. Greenbrier The Academy school s Trust ( the RMS and the Greenbrier Trust contracted for RMS to provide management services to the school. Tuition was paid to the Greenbrier Trust, and the Greenbrier Trust paid over the funds to RMS as management fees. Of the above entities, only RMS and TAS Greenbrier Properties, LLC, ever had any employees. The school -- called the Greenbrier Academy for Girls ( the Academy ) -- opened in September 2007. Mitchell, were Bart involved Mitchell, in its Cheryl Mitchell, operation. Appellees L. Jay and Appellee Sharon Highmark Virginia, Inc., provided RMS with its group health plan. 4 Findlay West Solacium is a holding company operate schools for troubled youth. for entities that In 2006, Solacium, through an affiliate entity, bought the assets of Alldredge Academy, a school co-founded by L. Jay Mitchell in 1999. Also in 1999, Solacium New Haven, LLC, hired L. Jay Mitchell as Chief Program Officer. L. Jay Mitchell also acquired an ownership interest in Solacium at that time. An August 2007 magazine article based on an interview with L. Jay Mitchell and others noted that Solacium would be opening a however, new L. school Jay in West Mitchell Virginia. disputed that In his deposition, characterization and speculated that it was likely based on the view that Solacium hoped to be able to buy the Academy in the future. J.A. 366. 1 On September 1, 2007, Solacium and RMS entered into an agreement provide ( the 2007 Agreement ) administrative administration, personnel, The 2007 Agreement RMS s assets. services also whereby (including accounting, gave Solacium Solacium and an agreed payroll, to benefit marketing) to option purchase to RMS. Specifically, under the 2007 Agreement, Solacium could exercise the option during the one-year period beginning approximately on September 1, 1 2011, four years after the Citations to the J.A. refer to the Joint Appendix filed by the parties in this appeal. 5 execution of the 2007 Agreement. The 2007 Agreement was short- lived, however, as the parties terminated it (as well as L. Jay Mitchell s employment agreement with months later, on January 1, 2008. Solacium) a mere four Thereafter, Solacium had no involvement in the operation or management of the Academy. 2009, RMS was authorized to use the trade name In Greenbrier Academy for Girls, and the Greenbrier Trust was dissolved. Meanwhile, RMS hired Ms. Feamster in September 2007. She, along with her husband, received health insurance through RMS s group plan. Ms. Feamster took a medical leave of absence in March 2008, and her health insurance coverage ended on June 1, 2008. Ms. Feamster then sought COBRA coverage, but RMS told her it that did not provide such coverage; her insurance provider explained that this was because RMS had fewer than 20 employees. As a result, the Feamsters incurred hundreds of thousands of dollars in medical expenses, a portion of which would have been covered by health insurance if Ms. Feamster had received COBRA coverage. B. The Feamsters filed a complaint in the United States District Court for the Southern District of West Virginia in March 2010. Following discovery in the federal case and in a 6 related state case, 2 they filed their third amended complaint on February 11, 2011. Mitchell, Cheryl It contained four counts: (1) that RMS, Bart Mitchell, and Sharon Findlay misrepresented that the group health plan was subject to the small-employer exemption and unlawfully failed to provide the Feamsters with COBRA coverage, thus entitling the Feamsters to reimbursement of medical expenses; (2) that RMS, Bart Mitchell, Cheryl Mitchell, and Sharon Findlay failed to provide notice of COBRA coverage to the Feamsters, and the administrator is liable to plan participants in the amount of $110 per day and reimbursement of medical expenses; (3) that one or more of the Appellees breached their fiduciary duties and are personally liable to the plan for the misuse of plan assets; and (4) that Appellees breached their fiduciary duties, and the Feamsters are entitled to appropriate equitable relief. A number of motions to dismiss and motions for summary judgment followed. district court Before ruling on the motions to dismiss, the granted Appellees judgment for two alternative reasons. cross-motion for summary First, it determined that RMS was a small employer in the 2007 calendar year, and thus 2 In March 2009 the Feamsters had filed suit in West Virginia state court under various state law theories, also with the goal of recovering medical expenses. Those claims were dismissed on summary judgment on April 21, 2011. 7 was not obligated to provide COBRA coverage. J.A. 920-25. Second, it determined that even if the court had found that RMS was an affiliated service group with Solacium, that group would have had more than twenty employees for only four months of the 2007 calendar year, which it deemed insufficient to move it out of the small employer category such that it would have been obligated to provide COBRA coverage. J.A. 925-26. The Feamsters timely appealed. II. The central question on appeal is whether, by virtue of Solacium s option to purchase RMS s assets, RMS and Solacium should have been considered a single employer for purposes of COBRA continuation health coverage in 2007. The parties agree that RMS had fewer than 20 employees during that time, but that combined with Solacium, there were more than 20. 3 As a result, if the two organizations are considered a single employer, the 3 Appellees conceded in the district court that the following entities should be considered the same employer under 26 U.S.C. § 414(c): the Family Trust; the Greenbrier Trust; RMS; TAS Development, LLC; TAS Greenbrier Properties, LLC; L. Jay, Inc.; and L. Jay Mitchell Group. Defs. Mem. in Opp n to Pls. Mot. for Summ. J. and in Supp. of Cross-Mot. for Summ. J. 14 (Dist. Doc. No. 340). Most of these entities had no employees, however, and in any case, their combined employees did not add up to 20 during the relevant time period. 8 employer provide would COBRA considered have 20 or more coverage to Ms. separate employers, employees, Feamster. RMS obligating But if permissibly it to they are denied Ms. Feamster that coverage, and the district court properly granted summary judgment to Appellees. Whether a party is entitled to summary judgment is a question of law we review de novo using the same standard applied by the district court. Henry v. Purnell, 652 F.3d 524, 531 (4th Cir. 2011) (en banc). Summary judgment is appropriate when there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). Through COBRA, Congress required ERISA plan sponsors to provide terminated employees and[/]or their dependents with the option of purchasing continuation health coverage without regard to insurability. Johnson v. Reserve Life Ins. Co., 765 F. Supp. 1478, 1479 (C.D. Cal. 1991). See 29 U.S.C. § 1161(a) ( The plan sponsor of each group health plan shall provide, in accordance with this part, that each qualified beneficiary who would lose coverage under the plan as a result of a qualifying event is entitled, under the plan, to elect, within the election period, continuation coverage under the plan. ). However, COBRA rules do not apply to employers with fewer than 20 employees on 9 a typical business day during the preceding calendar year. 29 U.S.C. § 1161(b). Because Ms. Feamster took medical leave from RMS in March 2008, we must determine whether during the preceding calendar year -- 2007 -- her employer had 20 or more employees on a typical business day. questions on appeal: (1) This inquiry gives rise to the two whether RMS and Solacium should be considered a single employer by virtue of the 2007 Agreement s provision granting Solacium an option to purchase all of RMS s assets; and (2) if so, whether RMS and Solacium were a single employer without on a typical deciding that business the day option during gave 2007. Solacium Assuming constructive ownership of RMS, we conclude that such ownership existed for fewer than half of the employer s typical business days in 2007, and, thus, that Appellees were not obligated to provide COBRA coverage to the Feamsters. III. The conferred district constructive court held ownership of that the even if Academy the on option Solacium, that constructive ownership did not exist for a long enough time to require the employer to offer COBRA continuation coverage. The court reasoned that because the 2007 Agreement was in effect for only four months (from when it was executed on September 1, 10 2007, until it was terminated on January 1, 2008), RMS and Solacium were not a single employer on a typical business day in 2007. Consequently, the court concluded, the employer had fewer than 20 employees during the relevant time period, and was thus not obligated to provide COBRA continuation coverage. Under the applicable Treasury Regulation, [a]n employer is considered to have normally employed fewer than 20 employees during a particular calendar year if, and only if, it had fewer than 20 employees on at least typical business days during that year. 2, Q&A-5(b). 4 50 percent of its 26 C.F.R. § 54.4980B The Feamsters argue that [b]ecause the Greenbrier facility only opened on September 1, 2007, the court should have taken into account [only typical business days. the] days following that date as Feamster Br. 32. 4 The district court mistakenly relied on a proposed version of this regulation, under which the inquiry is described as follows: An employer is considered as having normally employed fewer that 20 employees during a particular calendar year if, and only if, it had fewer than 20 employees on at least 50 percent of its working days during that year. Prop. Treas. Reg. § 1.162-26, 52 Fed. Reg. 22716-01, Q&A 9(b) (June 15, 1987) (emphasis added). The final regulation quoted above uses the language typical business days rather than working days, see 26 C.F.R. § 54.4980B 2, Q&A-5(b), rendering the district court s reliance on the proposed regulation problematic; if, for some reason, the calculation of working days is not coextensive with the calculation of typical business days, the resulting conclusion could differ. Appellees assertion that the district court unquestionably applied the right standard, even though it relied upon authority that is not directly controlling, is therefore wrong. See Appellees Br. 39. 11 The Feamsters make the following arguments to support their position. First, business is not open Feamster Br. 32. But they argue cannot RMS that be had a [a] day typical existed since in which business 2005, a day. and TAS Greenbrier Properties, LLC, which was part of the RMS controlled group, had employees throughout 2007. all employees of trades or See J.A. 552-72. business[es] (whether Because or not incorporated) which are under common control shall be treated as employed by a single employer, 26 U.S.C. § 52(b)(1), the fact that TAS Greenbrier Properties, functioned throughout the year LLC, had undermines employees the and Feamsters argument that the business was not open until September 1, 2007. Second, the Feamsters point to Kidder v. H & B Marine Inc., 932 F.2d 347 (5th Cir. 1991), also a case involving COBRA claims. In Kidder, two corporations, each with fewer than 20 employees, merged. Id. at 349. had more than 20 employees. the two corporations were Together, the two corporations Id. at 350. properly The court held that treated as the same employer because the corporations were owned entirely by the same four individuals, id. at 355; in other words, they were commonly controlled before the merger. are no allegations that Solacium 12 Here, by contrast, there and RMS were commonly controlled until September 1, 2007. The Feamsters reliance on Kidder is therefore misplaced. Third, the Feamsters argue that if the employees of other RMS-controlled entities are factored into the analysis to determine a serve justification as typical business for day, the attributing same principle Solacium s employee groups to RMS during the prior period. 34. This argument is unpersuasive. would component Feamster Br. The employees of other entities in the RMS controlled group are relevant because 26 U.S.C. § 52(b)(1) business[es] common (whether control employer. require requires that all or not be treated shall employees incorporated) as of which employed trades or are under a single by The Feamsters cite no similar authority that would including organization the (here, number of Solacium) employees before of that a second organization affiliates with the first organization (here, RMS). Finally, the Feamsters cite to the language of the statute itself, which refers to all employers. 1161(b) (emphasis added). The Feamsters cite 29 U.S.C. § no authority inferring from the word all that the inquiry should include employees of an entity that maintains constructive ownership of the direct employer for just a few months of the relevant calendar year; if that were so, a large company s purchase of a small one on December 31 would 13 render the small company s employees eligible for COBRA continuation coverage in the following year as if they had worked for the large employer for all of the prior year. Such a situation would lead to the absurd result that a small company acquired on December 31 would be treated differently from a single company that merely expands and increases the number of its employees throughout the year, such that it has 19 employees for six months and a day, and 20 or more for the remainder of the year. believe that Congress intended such There is no reason to a distinction between individual companies and companies acquired by other entities. 5 IV. For the reasons set forth, the judgment of the district court is AFFIRMED. 5 Moreover, the interpretation the Feamsters propose lacks a coherent limiting principle. What if, for example, the Academy opened on December 1, rather than September 1 - would typical business days be only those business days in the month of December? And if the Academy had opened in the final week of December, would typical business days include only that week? Such a result is clearly not contemplated by § 1161(b) s insistence that we look to typical business days. 14
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