CLAYTON GROUP SERVICES INC V FIRST ALLMERICA FINANCIAL LIFE
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STATE OF MICHIGAN
COURT OF APPEALS
CLAYTON GROUP SERVICES, INC., f/k/a
CLAYTON ENVIRONMENTAL
CONSULTANTS,
UNPUBLISHED
July 26, 2002
Plaintiff-Appellant,
No. 226491
Oakland Circuit Court
LC No. 99-015795-CK
v
FIRST ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY, GROUP PERKS,
INC., and ROBERT SCHECHTER &
ASSOCIATES,
Defendants-Appellees.
Before: Jansen, P.J., and Holbrook, Jr. and Griffin, JJ.
PER CURIAM.
Plaintiff appeals as of right from the trial court’s orders granting summary disposition in
favor of defendants under MCR 2.116(C)(10), ruling that plaintiff’s claims are preempted by the
Employee Retirement Income Security Act (ERISA), 29 USC 1001 et seq. We affirm.
I
Plaintiff is an environmental safety consulting company, with its offices located in the
city of Novi. Defendant First Allmerica Financial Life Insurance Company (First Allmerica) had
issued a group health insurance policy (the plan) to plaintiff on January 1, 1997. Defendants
Group Perks, Inc., and Robert Schechter & Associates (Group Perks/Schechter) are insurance
agencies that have acted as an agent for plaintiff with regard to its various insurance, financial,
and employee benefits matters. The plan, by its terms, provides benefits “pursuant to an
employee welfare benefit plan or plans within the meaning of ERISA.” Plaintiff is the plan
sponsor and administrator and First Allmerica is a co-administrator.
In 1997, there was an unusually large claims history made under the plan, and plaintiff’s
premiums for 1998 would have been substantially higher. Because of the anticipated increase in
the premiums, plaintiff consulted with Peter Mendler, an insurance agent with Group
Perks/Schechter. The discussion centered around changing health coverage from the First
Allmerica plan to various Health Maintenance Organizations (HMO). Because plaintiff has
employees throughout the country, it would not have been possible to enroll all the employees in
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an HMO before termination of the plan with First Allmerica. Therefore, it was necessary to
leave some employees on the First Allmerica plan until an HMO plan could be effectuated for
them.
Plaintiff was concerned about the impact on the premiums by leaving some employees on
the First Allmerica plan. Consequently, Mendler contacted Joseph Graham, a sales manager for
First Allmerica. Under the terms of the plan, set forth in rider number one, plaintiff was required
to pay a monthly fixed cost and to pay a variable cost that depended on the claims filed by
plaintiff’s employees and was capped by a cumulative monthly claim limit to First Allmerica.
Because of the time lapse inherent in paying medical claims, the plan provided that the
cumulative monthly claim limit is determined from the number of employees insured three
months earlier. Graham, however, assertedly informed Mendler that the maximum premium
would be based on the number of employees covered under the plan for that month. According
to plaintiff, Mendler was assured that plaintiff would be charged only for the employees who
remained on the First Allmerica plan and Mendler reported this to plaintiff.
Based on this information from Mendler, plaintiff moved the majority of its employees to
health insurance policies with HMOs in February 1998. First Allmerica, however, continued to
charge premiums reflecting coverage for the employees who had been moved to the HMOs
based on the three-month lag as set forth in the rider. Plaintiff then requested that First
Allmerica refund what plaintiff claimed was an over charge of $113,304.78. First Allmerica
refused to reimburse any amount to plaintiff. Plaintiff subsequently filed suit against First
Allmerica and Group Perks/Schechter, alleging claims of misrepresentation, breach of contract,
and negligence.
After the completion of discovery, First Allmerica moved for summary disposition,
contending that plaintiff’s claims were preempted by ERISA. The trial court agreed, finding that
this dispute involved rights and obligations under an employee benefit plan covered by ERISA.
GroupPerks/Schechter subsequently moved for summary disposition as well, and the trial court
also granted that motion. The trial court again found that plaintiff’s claims relate to an ERISA
plan, and the claims were preempted by ERISA.
II
We review de novo the trial court’s ruling regarding defendants’ motions for summary
disposition under MCR 2.116(C)(10). Maiden v Rozwood, 461 Mich 109, 118; 597 NW2d 817
(1999). Likewise, we review de novo the trial court’s ruling regarding the applicability of
ERISA preemption as a question of law. Woodworker’s Supply, Inc v Principal Mut Life Ins Co,
170 F3d 985, 989 (CA 10, 1999).
III
With these general principles in mind, we first address plaintiff’s claims of
misrepresentation and breach of contract against First Allmerica. We begin by noting that before
preemption will be found, there must be a state law involved, there must be an employee benefit
plan, and the state law must relate to the employee benefit plan. Airparts Co, Inc v Custom
Benefit Services of Austin, Inc, 28 F3d 1062, 1064 (CA 10, 1994). Here, there is clearly a state
law involved, that being common law claims of misrepresentation and breach of contract. See,
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e.g., Ingersoll-Rand Co v McClendon, 498 US 133, 138-139; 111 S Ct 478; 112 L Ed 2d 474
(1990) (common law claim of wrongful discharge constitutes a state law claim). Further, this
case implicates an employee benefit plan because the terms of the plan clearly state that it is
intended to provide benefits pursuant to an employee welfare benefit plan within the meaning of
ERISA and the rider describing the terms of the premiums specifically states that it is attached to
and made a part of the plan.
The central question is whether plaintiff’s state law claims against First Allmerica “relate
to” the employee benefit plan. 29 USC 1144(a). As the court in Airparts stated, perhaps even
understated, “[t]here is no simple test for determining when a law ‘relates to’ a plan.” Id. at
1064, quoting Nat’l Elevator Industry, Inc v Calhoon, 957 F2d 1555, 1558 (CA 10, 1992). The
United States Supreme Court has held that a state law “relate[s] to” an employee benefit plan “if
it has a connection with or reference to such a plan.” Shaw v Delta Air Lines, Inc, 463 US 85,
96-97; 103 S Ct 2890; 77 L Ed 2d 490 (1983). More specifically, a state law refers to a plan and
will be preempted where: (1) the state law imposes requirements by reference to an ERISA
covered program; (2) the state law acts immediately and exclusively on ERISA plans; or (3) the
existence of an ERISA plan is essential to the state law’s operation. California Division of
Labor Standards Enforcement v Dillingham Construction, N A, Inc, 519 US 316, 324-325; 117 S
Ct 832; 136 L Ed 2d 791 (1997); Wilson v Zoellner, 114 F3d 713, 716 (CA 8, 1997).
Here, we must conclude that plaintiff’s breach of contract claim against First Allmerica is
premised on the existence of an ERISA plan. Ingersoll-Rand, supra at 140. Specifically,
plaintiff alleges that First Allmerica (a co-administrator of the plan) breached the plan when it
failed to give thirty-one days’ notice of a rate increase as required by the plan.1 Clearly, this
cause of action arises out of the group health insurance plan, that is, the existence of the plan is a
critical factor in establishing liability for breach of contract. Id. at 139-140. Without the plan,
there can be no breach. Therefore, plaintiff’s breach of contract claim against First Allmerica is
preempted by ERISA because this claim refers to the plan.
While the misrepresentation claim against First Allmerica does not necessarily refer to
the plan, see Wilson, supra at 717 (state common-law tort of negligent misrepresentation does
not contain a reference to ERISA), we find that the misrepresentation claim is connected with the
plan such that it is preempted. To determine whether a state law claim has a forbidden
connection with the plan, the courts look to the objective of ERISA as a guide to the scope of
state law that Congress understood would survive and to the nature and effect of the state law on
ERISA plans. Dillingham, supra at 325. A state law has a prohibited connection with the plan
where: (1) the state law mandates employee benefit structures or their administration; or (2) the
state law provides alternative enforcement mechanisms. New York State Conference of Blue
Cross & Blue Shield Plans v Travelers Ins Co, 514 US 645, 658; 115 S Ct 1671; 131 L Ed 2d
695 (1995).
Plaintiff alleges that First Allmerica misrepresented the terms of the plan when Graham,
First Allmerica’s sales manager, told Mendler that the premiums would be based on the number
1
This notice requirement is contained in rider number one, which, as we have stated, is made a
part of the plan by its terms.
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of employees insured under the plan beginning on the first day of each month, rather than on the
third preceding month as the plan specified. Here, we note that plaintiff is an ERISA entity
because it is both the employer and the administrator of the plan. First Allmerica is also an
ERISA entity because it is the issuer of the plan and a co-administrator. See Airparts, supra at
1065 (the principal ERISA entities are the employer, the plan, the plan fiduciaries, and the
beneficiaries).2 The misrepresentation claim involves ERISA entities and the amount of
premiums to be made to the plan. The misrepresentation claim, therefore, relates to the plan
because it arises out of the administration of the plan. In particular, ERISA requires all
employee benefit plans to “specify the basis on which payments are made to and from the plan,”
29 USC 1102(b)(4), and the fiduciary (First Allmerica) shall administer the plan “in accordance
with the documents and instruments governing the plan,” 29 USC 1104(a)(1)(D). See also,
Egelhoff v Egelhoff, 532 US 141; 121 S Ct 1322; 149 L Ed 2d 264, 271 (2001). Therefore,
plaintiff’s misrepresentation claim against First Allmerica is preempted by ERISA because it is
connected with the plan where the claim arises out of the administration of the plan.
Accordingly, the trial court did not err in granting summary disposition in favor of First
Allmerica because plaintiff’s claims are preempted by ERISA where the claims relate to the
plan.
IV
Later, the circuit court granted summary disposition in favor of defendants Group
Perks/Schechter on the basis that because plaintiff’s claims against First Allmerica were
preempted by the ERISA, plaintiff’s claims against Group Perks/Schechter were also preempted
because they relied on the same set of facts. The Honorable Steven N. Andrews reasoned:
Clearly, Plaintiff’s claims [against Group Perks/Schechter] relate to an
ERISA plan. Plaintiff’s allegations concern the proper calculation of ERISA plan
premiums, and Defendants’ alleged statements regarding the calculation of plan
premiums. Here, in entertaining the merits of plaintiff’s negligence and
misrepresentation claims, the Court would be required to calculate the policy
premiums that would have been owed under a plan administered by Allmerica or
by plans administered by the various HMOs. Plaintiff’s claims are sufficiently
related to the subject matter regulated by ERISA to be preempted.
2
First Allmerica constitutes a “fiduciary” of the plan as that term is broadly defined in ERISA:
[A] person is a fiduciary with respect to a plan to the extent (i) he
exercises any discretionary authority or discretionary control respecting
management of such plan or exercises any authority or control respecting
management or disposition of its assets, (ii) he renders investment advice for a fee
or other compensation, direct or indirect, with respect to any moneys or other
property of such plan, or has any authority or responsibility to do so, or (iii) he
has any discretionary authority or discretionary responsibility in the
administration of such plan. [29 USC 1002(21)(A).]
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We agree with the circuit court. Indeed, plaintiff’s claims against Group Perks/Schechter
in count III of its complaint were substantially similar to its claims against First Allmerica in
count I. Where the claims against First Allmerica alleged that First Allmerica had “made
negligent misrepresentations in regard to the Group Policy” which were “egregious, arbitrary,
and indifferent to its insured, the Plaintiff,” plaintiff’s claims against Group Perks/Schechter
alleged that Group Perks/Schechter were “negligent and unskillful in failing to properly interpret
the Group Policy of defendant Allmerica, to the detriment of the plaintiff.” (Emphasis added.)
Essentially, plaintiff’s complaint relies on the same facts regarding all defendants – the
interpretation and representation of First Allmerica’s policy language by First Allmerica and
Group Perks/Schechter – and claims negligence or misrepresentation on the part of First
Allmerica or Group Perks/Schechter or both. Because the claims rely on the same facts, in order
to prevail in this action plaintiff had to prove that either (1) the employee benefit plan offered by
defendant was modified before plaintiff switched its employees from that plan to another or (2)
that the provision – requiring that premiums in any given month were based on the number of
employees enrolled in the plan three months before that date – was misrepresented by
defendants. However, either of these possibilities would require an interpretation of the ERISA
plan. Accordingly, the lower court correctly found preemption and granted summary disposition
in favor of Group Perks/Schechter.
V
Plaintiff also argues that the trial court erred in refusing to allow it to amend its
complaint. MCR 2.116(I)(5) provides:
If the grounds asserted are based on subrule (C)(8), (9), or (10), the court
shall give the parties an opportunity to amend their pleadings as provided by
MCR 2.118, unless the evidence then before the court shows that amendment
would not be justified.
In our view, allowing plaintiff to amend its complaint would be futile because under the
ERISA’s statutory scheme, the federal courts have exclusive jurisdiction over plaintiff’s claims.
A trial court need not grant leave to amend a complaint when the amendment would be futile.
Jenks v Brown, 219 Mich App 415, 420; 557 NW2d 114 (1996). 29 USC 1132(e) provides that
Except for actions under subsection (a)(1)(B) of this section, the district
courts of the United States shall have exclusive jurisdiction of civil actions under
this subchapter brought by the Secretary or by a participant, beneficiary,
fiduciary, or any person referred to in section 1021(f)(1) of this title. State courts
of competent jurisdiction and district courts of the United States shall have
concurrent jurisdiction of actions under paragraphs (1)(B) and (7) of subsection
(a) of this section.
Plaintiff’s claims do not fall within one of the exceptions to the grant of exclusive jurisdiction in
the federal courts. Subsection (a)(1)(B) allows participants or plan beneficiaries “to recover
benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan,
or to clarify his rights to future benefits under the terms of the plan.” 29 USC 1132(a)(1)(B).
However, plaintiff is not a participant or beneficiary of the plan. 29 USC 1002(7), (8). Indeed,
in its proposed amended complaint, plaintiff avers that it is suing “in [its] capacity as a fiduciary
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within the meaning of ERISA.” Thus, first exception to the exclusive jurisdiction mandate in the
ERISA is not available to plaintiff. The other exception is also not applicable to plaintiff.
Section (1)(B)(7) allows a state to “to enforce compliance with a qualified medical child support
order.” 29 USC 1132(a)(1)(B)(7). That is not the situation in the case at bar. Therefore, the
federal courts are vested with exclusive subject-matter jurisdiction of this matter and any motion
to amend plaintiff’s complaint would have been futile. The lower court did not err when it
denied plaintiff’s motion to amend.
Affirmed.
/s/ Donald E. Holbrook, Jr.
/s/ Richard Allen Griffin
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