Rinehart v. Life Insurance Company of North America, No. 3:2008cv05486 - Document 39 (W.D. Wash. 2009)

Court Description: ORDER granting 13 Plaintiff's Motion for Partial Summary Judgment; denying 23 Defendant's Cross Motion for Summary Judgment; finding as moot 28 Motion to Consolidate Summary Judgment Motions, signed by Judge Ronald B. Leighton.(DN)

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Rinehart v. Life Insurance Company of North America 1 Doc. 39 HONORABLE RONALD B. LEIGHTON 2 3 4 5 6 7 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT TACOMA 8 9 10 EDWARD RINEHART, Case No. C08-5486 RBL 11 Plaintiff, 12 v. 13 14 15 LIFE INSURANCE COMPANY OF NORTH AMERICA, Defendant. ORDER GRANTING PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT ON DEFENDANT’S ERISA DEFENSE AND DENYING DEFENDANT’S CROSS MOTION FOR SUMMARY JUDGMENT 16 17 18 19 20 21 22 THIS MATTER is before the Court on Plaintiff’s Motion for Partial Summary Judgment on 23 24 Defendant’s ERISA defense [Dkt. #13], and Defendant’s Cross Motion for Summary Judgment [Dkt. #23]. 25 Plaintiff seeks an order determining that ERISA does not apply to his claims under a long term disability plan, 26 and dismissal of Defendant’s affirmative ERISA defense. Defendant argues that ERISA does apply, and that 27 Plaintiff’s state law claims are therefore preempted. Defendant also argues that because ERISA applies, this 28 Court lacks jurisdiction and that Plaintiff lacks standing to sue Defendant. For the reasons set forth below, ORDER Page - 1 Dockets.Justia.com 1 2 Plaintiff’s Motion for Partial Summary Judgment is GRANTED, and Defendant’s Cross Motion for Summary Judgment is DENIED. 3 I. Introduction 4 5 Plaintiff was an employee at Providence St. Peters Hospital, a division of Providence Health & 6 Services (PH&S) when he became disabled. (Sieler Dec., Ex. 2, p. 3). PH&S was founded and continues 7 to be sponsored by the Sisters of Providence, a religious order of the Catholic Church1 [Dkt. #13; Dkt. 8 #23]. PH&S sponsored and administered a long-term disability plan (LTD Plan) which insured Plaintiff 9 at the time he became disabled. Id. Defendant, Life Insurance Company of North America (LINA) 10 11 12 issued the policy underwriting the LTD Plan and acted as the claims administrator for the LTD Plan. Plaintiff became disabled on August 8, 2005, and began receiving disability benefits under the 13 LTD Plan [Dkt. #17, Ex. I]. On October 10, 2007, LINA notified Plaintiff that it was terminating all 14 disability payments, due to an evaluation indicating that Plaintiff was no longer “disabled” as that term is 15 defined by the LTD Plan [Dkt. #17, Ex. A]. On August 1, 2008, Plaintiff commenced this action against 16 17 LINA, alleging the following state law claims: breach of contract, breach of the implied covenant of good 18 faith and fair dealing in insurance contracts, violation of RCW 48.30.015 (the Washington Insurance Fair 19 Conduct Act), violation of RCW 48.30 et seq. (the Washington Unfair Trade Practices Act), and violation 20 of RCW 19.86 et seq. (Washington State’s Consumer Protection Act) [Dkt. #1]. Notably, Plaintiff did not 21 allege any violations of the Employee Retirement Income Security Act (ERISA)2. 22 Defendant alleges, by way of an affirmative defense, that ERISA preempts all of Plaintiff’s state 23 24 law claims [Dkt. #6]. Defendant further alleges that because ERISA applies, Plaintiff lacks standing to 25 26 27 1 PH&S is a tax exempt organization under § 501(c)(3) of the Internal Revenue Code (Sieler Dec., Ex. 2, pp. 3-4); [Dkt. #1; Dkt. #6]. 2 28 Plaintiff alleged diversity jurisdiction under 28 U.S.C. § 1332 [Dkt. #1]. The parties apparently agree that Plaintiff is a citizen of Washington state and Defendant is incorporated in Pennsylvania with its principal place of business in Connecticut, and the amount in controversy exceeds $75,000. Id. ORDER Page - 2 1 2 bring this action against LINA3 [Dkt. #23]. Because PH&S (a Washington Resident for purposes of jurisdiction) would then be the only other party possibly liable for Plaintiff’s claims, Defendant argues 3 that the Court would then lack subject matter jurisdiction as diversity jurisdiction would no longer exist. 4 5 Plaintiff alleges that ERISA does not apply and requests that the Court dismiss Defendant’s affirmative 6 defense and allow him to pursue his state law claims. Two issues are presented in determining whether 7 ERISA applies to the LTD Plan. First, whether the LTD Plan qualifies as a “church plan” as defined by 8 ERISA [Dkt. #13]. Second, whether PH&S ever made an election under § 410(d) of Title 26, thereby 9 electing to have ERISA apply to the LTD Plan. Id. Only after determining if ERISA applies can the 10 11 Court address the merits of Defendant’s cross motion for summary judgment. II. Discussion 12 13 Summary judgment is proper “if the pleadings, the discovery and disclosure materials on file, and 14 any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to 15 judgment as a matter of law.” Fed. R. Civ. P. 56(c). In determining whether an issue of fact exists, the 16 17 Court must view all evidence in the light most favorable to the nonmoving party and draw all reasonable 18 inferences in that party’s favor. Anderson Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986); Bagdadi v. 19 Nazar, 84 F.3d 1194, 1197 (9th Cir. 1996). A genuine issue of material fact exists where there is 20 sufficient evidence for a reasonable factfinder to find for the nonmoving party. Anderson, 477 U.S. at 21 248. The inquiry is “whether the evidence presents a sufficient disagreement to require submission to a 22 jury or whether it is so one-sided that one party must prevail as a matter of law.” Id. At 251-52. The 23 24 moving party bears the initial burden of showing that there is no evidence which supports an element 25 essential to the nonmovant’s claim. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the movant 26 has met this burden, the nonmoving party then must show that there is a genuine issue for trial. Anderson, 27 3 28 ERISA authorizes suits by a claimant against plan administrators but not against claims administrators. Ford v. MCI Communications Corp. Health and Welfare Plan, 399 F.3d 1076 (9th Cir. 2005). Therefore, if ERISA applies, Plaintiff’s lacks standing to sue LINA (because it is the claims administrator) for ERISA plan benefits. ORDER Page - 3 1 2 477 U.S. at 250. If the nonmoving party fails to establish the existence of a genuine issue of material fact, “the moving party is entitled to judgment as a matter of law.” Celotex, 477 U.S. at 323-24. 3 ERISA was enacted to comprehensively protect the interests of employees and their employee 4 5 benefit plans such as retirement and disability plans. Ingersoll-Rand Co., v. McClendon, 498 U.S. 133, 6 137 (1990). ERISA applies to employee benefit plans established or maintained by any employer 7 engaged in commerce. 29 U.S.C. § 1003(A). “Any state law cause of action that duplicates, 8 supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional 9 intent to make the ERISA remedy exclusive and is therefore pre-empted.” Aetna Health Inc. v. Davila, 10 11 542 U.S. 200 (2004). 12 ERISA also establishes certain specific exceptions which fall outside the statute’s regulatory and 13 preemptive power. 29 U.S.C. 1003(b). One such exception is an employee benefit plan called a “church 14 plan.” Church plans are not ERISA plans. Id. Rather, they are plans “established or maintained for . . . 15 employees . . . by a church or by a convention or association of churches which is exempt from tax under 16 17 18 section 501 of [the Internal Revenue Code].” 29 U.S.C. § 1002(33)(A). The term “church plan” is somewhat misleading because even a plan established by a corporation 19 controlled by or associated with a church can also qualify as a church plan. This occurs in two ways. 20 First, ERISA defines “church plan” to include plans “maintained by an organization, whether a civil law 21 corporation or otherwise, the principal purpose or function of which is the administration or funding of a 22 plan . . . for the employees of a church . . .if such organization is controlled by or associated with a church 23 24 25 or a convention or association of churches.” 29 U.S.C. § 1002(33)(C)(i)4 (emphasis added). Second, 29 U.S.C. § 1002(33)(C)(ii)(II)’s definition of the term “employee” broadens the scope of 26 4 27 28 Defendant relies on 29 U.S.C. § 1002(33)(C)(i) which states “A plan established or maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association or churches, if such organization is controlled by or associated with a church or a convention or association of churches.” ORDER Page - 4 1 2 3 the term “church plan.” This section states that an “employee of a church . . . includes an employee of an organization . . . which is controlled by or associated with a church or a convention or association of churches5.” (Emphasis added). It is important to note the absence of the “principal purpose” language in 4 5 this provision of the statute. By leaving out that language, “ERISA brings a plan established or 6 maintained by a non-church organization within the general definition of a ‘church plan’ if that 7 organization is ‘controlled by’ or ‘associated with’ a church.” Catholic Charities of Maine, Inc. v. City of 8 Portland, 304 F.Supp.2d 77, 85 (D.Me.2004) (emphasis added). 9 A. The LTD Plan is a “Church Plan” and is Exempt from ERISA 10 11 Defendant argues that for the LTD Plan to qualify as a “church plan” it must satisfy the narrower 12 provision of §(33)(C)(i). Defendant argues that §(33)(C)(i) requires that the principal purpose of the 13 organization offering the benefits plan, must be the administration of that plan [Dkt. #23]. Plaintiff 14 argues, convincingly, that §(33)(C)(ii)(II) significantly broadens the scope of the term “church plan” and 15 brings the LTD Plan within the general definition of a “church plan.” Plaintiff argues that because PH&S 16 17 is controlled by and associated with a church, and because it has not outsourced the administration of the 18 LTD Plan to a third party, that the LTD Plan qualifies as “church plan.” The parties have raised great ado 19 about the correct statutory provisions intended to cover “church plans” under ERISA. Understandably, as 20 ERISA is inherently difficult to parse, both Plaintiff and Defendant focus on different portions of the 21 statute in supporting their argument. To better understand the difference between the two statutory 22 provisions a close analysis of those provisions is required. 23 24 25 §(33)(C)(i) and §(33)(C)(ii)(II) differ in one important way. §(33)(C)(i) requires that the organization (in our case PH&S, or, more specifically the Vice President of Human Resources for PH&S) 26 5 27 28 Plaintiff relies on 29 U.S.C. § 1002(33)(C)(ii)(II), which importantly does not include the “principal purpose” language from 29 U.S.C. § 1002(33)(C)(I), which Defendant relies on for its argument. 29 U.S.C. § 1002(33)(C)(ii)(II) states “the term employee of a church or a convention or association of churches includes . . . an employee of an organization, whether a civil law corporation or otherwise, which is exempt from tax under section 501 of Title 26 and which is controlled by or associated with a church or a convention or association of churches.” ORDER Page - 5 1 2 administering the benefits plan have as its principal purpose the duty of administering the benefits plan. Read in a vacuum, §(33)(C)(i) seems to limit the non-church organizations which can establish church 3 plans to only those organizations whose principal purpose or function is the administration or funding of a 4 5 6 7 8 9 benefits plan. However, case law analyzing the statute as well as sound statutory interpretation show that this limited view is incorrect. The case law analyzing the effect of §(33)(C)(i) has interpreted the provision as non-limiting. “Courts have overwhelmingly interpreted § 1002(33)(C)(i) as not limiting the non-church organizations which can establish church plans to those whose ‘principal purpose or function’ is the administration or 10 11 funding of a retirement . . . plan.” Torres v. Bella Hospital, Inc., 523 F.Supp.2d 123, 142 (Dist. Puerto 12 Rico 2007) (Citations omitted)6 (emphasis added). §(33)(C)(i) specifically deals with the situation where 13 an employer uses a third party to administer the benefits plan, when that third party is not affiliated with 14 the employer. In that limited instance, the third-party plan administrator must have as its principal 15 purpose or function the administration of the benefits plan. See Friend v. Ancillia Systems Inc., 68 16 17 F.Supp.2d 969, 973 (N.D.Ill. 1999), citing Health Const. Control v. Fuxan, 1997 WL 725440 (E.D.La., 18 Nov. 17, 1997). Put another way, (33)(C)(i) only acts to limit the church plan exception to situations 19 where the benefits plan is administered (or funded) by a third party. 20 21 §(33)(C)(ii)(II) operates in a wholly different capacity. Instead of limiting the number of plans that qualify as “church plans,” this provision broadens the scope of the term “church plan.” By defining 22 the term “employee” in the manner it does, §(33)(C)(ii)(II) broadens the definition of the term “church 23 24 25 plan.” The provision defines an employee of a church broadly, stating that an “employee of a church . . . includes an employee of an organization . . . which is controlled by or associated with a church or a 26 6 27 28 See Chronister v. Baptist Health, 442 F.3d 648, 652-53 (8th Cir. 2006) (treating healthcare organization as encompassed within the church plan exception if it is controlled by or associated with a church regardless of its principal purpose or function); Lown v. Continental Casualty Co., 238 F.3d 543, 547-48 (4th Cir. 2001) (same); Catholic Charities, 304 F.Supp.2d at 86 n. 4 (§1002(33)(C)(i) provides “an alternative means of satisfying the ‘church plan’ definition” rather than limiting the definition of the church plan). ORDER Page - 6 1 2 convention or association of churches.” (Emphasis added). This language necessarily increases the types of organizations which may establish and maintain “church plans.” 3 Considering §(33)(C)(ii)(II)’s broadening effect on what qualifies as a church plan, the crux of the 4 5 analysis must focus on whether PH&S is controlled by or associated with a church7. “Controlled by” is 6 not defined by ERISA; however, courts have taken the language to mean “referring to corporate control, 7 such as control over the appointment of a majority of the non-church organization’s officers or Board of 8 Directors.” Catholic Charities, 304 F.Supp.2d at 85 (citing Lown, 238 F.3d at 547). See also 26 C.F.R. § 9 1.414(e)-1d2 (“an organization, the majority of whose officers or directors are appointed by a church’s 10 11 governing board, or by officials of a church, is controlled by a church”). “Associated with” is defined by 12 ERISA. 29 U.S.C. § 1002(C)(iv) clearly identifies the requisite relationship, providing “an organization . 13 . . is associated with a church . . . if it shares religious bonds and convictions with that church.” 14 15 PH&S is “controlled by” the Catholic Church through the Sisters of Providence8. Indeed, Defendant admits that PH&S is controlled by the church within the meaning of (33)(C)(iv). (Sieler Dec., 16 17 18 Ex. 2, p. 3). Moreover, the Department of Labor and the Internal Revenue Service have concluded that PH&S is controlled by the Roman Catholic Church9. Id at 5; (Rogers Dep., Ex. 2, p. 6). Applying the 19 20 21 22 23 24 7 Defendant argues that (33)(C)(i) should apply because the LTD Plan is administered by a third-party administrator, to wit, the Vice President of Human resources of PH&S [Dkt. #23]. This argument fails because the Vice President of Human Resources for PH&S is by no means a third party “organization” as required under (33)(C)(i) (it is important to note that this is the means by which Defendant justifies its “principal purpose or function” argument and for the application of (33)(C)(i) to the facts of this case). Indeed PH&S selected the Vice President of Human Resources (or his/her designee) as the LTD Plan Administrator/Plan Sponsor. However, because the Vice President of Human Resources is employed by and under the direct control of PH&S, and there are no facts suggesting that the Vice President qualifies as a separate “organization” under the statute, the Court considers PH&S and the Vice President as one-in-the-same “organization” for purposes of the church plan exception. 8 25 26 27 28 The parties do not dispute that in 1995, the Department of Labor determined that the Sisters of Providence was controlled by and associated with the Roman Catholic Church within the meaning of (33)(C)(iv). (Sieler Dec., Ex. 2, p. 3). Defendant has failed to produced any evidence suggesting that the Sisters of Providence is no longer controlled by the Roman Catholic Church. The Court therefore considers the Department of Labors opinion as still valid for purposes of this motion. 9 The Department of Labor reached its conclusion in Advisory Opinion 95-07 regarding Providence Services, which later changed its name to PH&S. (Sieler Dec., Ex. 2, p. 5). The IRS reached its conclusion regarding the Sisters of Providence in Washington and Providence St. Peter Hospital under 26 U.S.C. § 414(e)(3)(B)(ii), which mirrors 29 U.S.C. § 1002(33)(C)(ii)(II). (Rogers Dep., Ex. 2, p. 6). Providence St. Peter Hospital is a division of PH&S. ORDER Page - 7 1 2 3 “controlled by” test used in Catholic Charities, the Court reaches the same conclusion. The Sisters of Providence has the exclusive right to appoint and remove PH&S’s board of directors and its chairperson at any time with or without cause10. (Sieler Dec., Ex. 2, p. 6). This more than satisfies the “controlled 4 5 by” test of Catholic Charities, as the Sisters of Providence holds the right of appointment and removal as 6 it applies to every member of the board of directors. §(33)(C)(ii)(II) is therefore satisfied as the provision 7 only requires that the organization be “controlled by” or “associated with” a church to qualify as a church 8 plan. 9 PH&S is also “associated with” the Roman Catholic Church through the Sisters of Providence. 10 11 Again, Defendant admits to this association (Sieler Dec., Ex. 2, p. 3), and the Department of Labor and 12 the IRS both concluded that the association exists. Id at 5; (Rogers Dep., Ex. 2, p. 6). The Court reaches 13 the same conclusion by applying the “associated with” test provided under §(33)(C)(iv). That provision 14 states “an organization . . . is associated with a church . . . if it shares religious bonds and convictions with 15 that church.” It is clear that PH&S shares religious bonds and convictions with the Roman Catholic 16 17 Church. By its bylaws, all of PH&S’s medical staff is required to adhere to The Ethical and Religious 18 Directives of the Catholic Health Care Services as a condition of their employment. (Sieler Dec., Ex. 2, 19 pp. 5-6). Among other things, the Ethical and Religious Directives state that PH&S “must be animated 20 by the Gospel of Jesus Christ and guided by the moral tradition of the Church,” that PH&S’s “medical 21 research must adhere to Catholic moral principles,” and that “[PH&S’s] employees . . . must respect and 22 uphold the religious mission of the institution and adhere to these Directives.” (Montgomery Dec., Ex. 23 24 25 31, p. 3). Because PH&S is controlled by and associated with the Roman Catholic Church through the 26 10 27 28 The Sisters of Providence also possesses other rights suggesting that it has control over PH&S. For example, the Sisters of Providence has the exclusive right to appoint and remove the President &CEO of PH&S. (Sieler Dec., Ex. 2, p. 6). It has the exclusive right to alter, amend or repeal the Articles of Incorporation and Bylaws of PH&S. Id at 5. It has the exclusive right to adopt or change PH&S’s mission, philosophy, and values. Id at 6. It also has the right to approve the acquisition of assets, the incurrence of indebtedness, the dissolution, liquidation, consolidation or merger with another corporation or entity. Id at 6-7. ORDER Page - 8 1 2 Sisters of Providence, and because PH&S has not outsourced administration of the LTD Plan to a third party, the LTD Plan qualifies as a church plan as defined by ERISA. Defendant failed to offer any 3 evidence establishing a material issue of fact as to whether PH&S is controlled by or associated with the 4 5 6 Roman Catholic Church11; therefore Plaintiff’s has satisfied the first element necessary to qualify the LTD Plan for a church plan exception. 7 B. PH&S did not Elect to have the LTD Plan Governed by ERISA. 8 ERISA exempts from its coverage “a church plan, as defined by § 1002(33) of this Title with 9 respect to which no election has been made under § 410(d) of Title 26.” 29 U.S.C. § 1003(b)(2) 10 11 (permitting an otherwise exempt church plan to make an irrevocable election pursuant to § 410(d) to have 12 ERISA apply to such a plan). A § 410(d) election must be made “in such form and manner as the 13 secretary may by regulations prescribe.” 26 U.S.C. § 410(d). The regulations for making § 410(d) 14 election are contained in 26 C.F.R. § 1.410(d)-(c). The election must be made by the plan administrator 15 of the church plan (PH&S in this case), who must attach a statement to either the annual return required 16 17 under § 6058(a) [the Form 5500], or a written request for a determination letter relating to the 18 qualification of the plan. Id. The statement “shall indicate (i) that the election is made under § 410(d) of 19 the Code and (ii) the first plan year for which it is effective.” 26 C.F.R. 1.410(d)-(c)(5) (emphasis added). 20 PH&S has never submitted a statement under § 410(d) electing to have the LTD Plan governed by 21 ERISA. (Rogers Dep., pp. 7-8). While PH&S did file “5500 [Forms] for a number of years,” at no point 22 did it make an affirmative election under § 410(d) as required to have the ERISA apply to the LTD Plan. 23 24 25 26 Id. Torres illustrates the affirmative and specific election required in order to have ERISA apply to a church plan. 523 F.Supp.2d at 141. In that case, the court found several statements (including one 27 11 28 Defendant instead focused almost exclusively on the “principal purpose” element required under (33)(C)(i). As is explained above, Defendant’s argument interpreting (33)(C)(i) narrowly as restricting church plans via the “principal purpose” language contained therein is incorrect. ORDER Page - 9 1 2 attached to a Form 5500) by the plan administrator (also a hospital) declaring that ERISA applied to the church plan, as insufficient to satisfy the requirements of 26 C.F.R. § 1.410(d)-(c). The court 3 acknowledged the hospital’s intention to have ERISA apply, but stated that 26 C.F.R. § 1.410(d)-(c) 4 5 6 imposes a strict requirement that the electing party state explicitly that it is making its election under § 410(d).” Id. at 141 fn. 3 (emphasis added). 7 The Court agrees that 26 C.F.R. § 1.410(d)-(c) requires a strict election, especially considering the 8 irrevocable nature of the election after it is made. While PH&S may have believed that ERISA applied to 9 the LTD Plan (after years of filing Form 5500's), such was not the case. Because Defendant has failed to 10 11 provide any factual support that PH&S effectively elected to have ERISA apply to the LTD Plan under § 12 410(d), Plaintiff’s motion for summary judgment on this issue is GRANTED. 13 C. Defendant’s Cross Motion for Summary Judgment is DENIED 14 Defendant’s cross motion for summary judgment seeks dismissal of all Plaintiff’s claims. 15 Defendant’s motion is necessarily dependent on a determination that the LTD Plan is governed by 16 17 ERISA12. The Court has determined that the LTD Plan is a church plan not governed by ERISA. 18 Because ERISA does not apply to the LTD Plan, Defendant’s cross motion for summary judgment is 19 DENIED. 20 21 III. Conclusion For the reasons stated above, Plaintiff’s Motion for Summary Judgment on Defendant’s ERISA 22 defense, [Dkt. #13], is hereby GRANTED. Defendant’s affirmative ERISA defense is dismissed with 23 24 25 prejudice. Defendant’s Cross Motion for Summary Judgment, [Dkt. #23], is DENIED. IT IS SO ORDERED. 26 27 28 12 Defendant presents the following three cognizable arguments in its cross motion for summary judgment: (1) that Plaintiff lacks standing to bring suit against LINA under ERISA, because ERISA does not allow suits against claims administrators (LINA in this case); (2) that were Plaintiff to name PH&S as a defendant due to its role as the plan administrator (as is allowed under ERISA), diversity would be destroyed; and (3) that all of Plaintiff’s state law claims are preempted by ERISA [Dkt. #23]. ORDER Page - 10 1 2 3 Dated this 14th day of April, 2009. 4 5 A 6 7 RONALD B. LEIGHTON UNITED STATES DISTRICT JUDGE 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ORDER Page - 11

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