Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_12-cv-06318/USCOURTS-cand-3_12-cv-06318-8/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1001 E.R.I.S.A.: Employee Retirement

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

DIANA JAMES,

Plaintiff,

v.

AT&T WEST DISABILITY BENEFITS 

PROGRAM, et al.,

Defendants.

Case No. 12-cv-06318-WHO 

ORDER RE OBJECTIONS TO 

ABSTRACTS OF JUDGMENT

Re: Dkt. Nos. 81, 82, 83

INTRODUCTION 

 Following entry of a judgment in her favor for improperly terminated long-term disability 

benefits and an award of attorney’s fees, plaintiff filed three abstracts of judgment in this case. 

Dkt Nos. 81-83. Defendant AT&T Umbrella Benefit Plan (Plan) objects to the abstracts, argues 

that the judgment and award of attorney’s fees in this case have been fully satisfied, and asks me

to vacate the abstracts. Dkt. No. 84. Plaintiff admits that the payment of attorney’s fees has been 

made – which was the subject of two of the abstracts – but contends that the Plan improperly 

withheld income tax from the check it paid to plaintiff and, therefore, that the Plan has not fully 

satisfied the judgment. Dkt. No. 86, 88. I find that the Plan was entitled to withhold the income 

taxes at issue and that the judgment in this case has been fully satisfied. 

BACKGROUND 

 In 2009, plaintiff Diana James became disabled during work and applied for long-term 

disability benefits available to her under defendant AT&T Umbrella Benefit Plan No. 1 (“Plan”). 

Compl. ¶¶ 3, 4. The Plan is self-insured by AT&T. Declaration of John D. Adkins ¶ 2 (Dkt. No. 

36). The long-term disability program covered by the Plan is entirely paid for by AT&T. AR 807. 

The long-term disability (LTD) program treats LTD payments as taxable income. AR 822. 

 The Plan denied benefits to James and James sued the Plan and defendant AT&T West 

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Disability Benefits Program (“Program”) to recover the benefits. Compl. ¶ 4, pg. 3. On July 18, 

2014, I ruled in favor of James, finding that the Plan abused its discretion under the Employee 

Retirement Income Security Act (“ERISA”). Order on Cross Mots. For Summ. J. 44 (Dkt. No. 

55). Subsequently, I entered a judgment awarding James $55,861.69 in long-term disability 

benefits with prejudgment interest. Dkt. No. 69. 

 On August 27, 2014, the Plan paid James $32,546.13 to cover both the owed benefits and 

the interest. Ex. A to Decl. of Rebecca K. Kimura (“Kimura Decl.”) ¶ 2 (Dkt. No. 85-1). The 

gross amount of the payment was, consistent with the judgment and award of interest, $56,161.69, 

but the Plan withheld $23,315.56 for tax purposes, making the net payment $32, 546.13.1

 Id.; see 

also Abstract of Judgment (Dkt. No. 83). On December 22, 2014, I awarded plaintiff $181,962.70 

in attorney’s fees. 

 In early 2015, James filed three abstracts of judgment; the first covering the award of 

attorney’s fees ($181,962.70), Dkt. No. 81; the second covering the award of attorney’s fees as 

well as the $23,315.56 plaintiff claims is still outstanding on the judgment, Dkt. No. 82; and a 

third covering only the $23,315.56 plaintiff believes is outstanding on the judgment. Dkt. No. 83.2

Id. James seeks either to recover the $23,315.56 that was withheld or, in the alternative, to compel 

the Plan to recalculate the benefit withholding to a lower amount pursuant to the W-4 form James 

provided to the Plan on October 5, 2014. Id.; Ex. 2 to Padway Decl. ¶ 3 (Dkt. No. 86-3). 

LEGAL STANDARD 

 Under 26 U.S.C. § 104(a), gross income includes amounts received through “accident or 

health insurance . . . for personal injuries or sickness” where “such amounts (A) are attributable to 

contributions by the employer which were not includible in the gross income of the employee, or 

(B) are paid by the employer.” See also 26 U.S.C. § 105(a) (“amounts received by an employee 

through accident or health insurance for personal injuries or sickness shall be included in gross 

 

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The Plan withheld $17,263.22 for federal taxes and $6,352.34 for state taxes. Id.

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The Plan claims that James also filed a fourth abstract in state court. Def.’s Objections 3; Reply 

4. The parties agree that the attorney’s fee award has been satisfied. Dkt. Nos. 87, 88. Plaintiff 

also admits that the second abstract, Dkt. No. 82, was duplicative. Pl. Oppo. at 3. Therefore, the 

only abstract/question that is at issue is the satisfaction of the judgment and whether withholding 

the $23,315.56 was appropriate. 

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income to the extent such amounts (1) are attributable to contributions by the employer which 

were not included in the gross income or the employee, or (2) are paid by the employer.”). Under 

26 C.F.R. § 31.3401(a)-1(a)(8) amounts paid under accident or health plans are considered wages 

and income tax withholding is mandatory for payments attributable to employer contributions 

under 26 U.S.C. § 105(a). That regulation also recognizes that “third party payments” of sick pay, 

are not wages for purposes of that section, but that payments made by an agent of the employer 

are considered wages and subject to withholding. 26 C.F.R. § 31.3401(a)-1(a)(8) & (b)(1)-(2).3 

Employers include persons “having control of the payments” of wages (26 U.S.C. § 3401(d)) and 

trusts who pay wages where the person for whom work services were performed “has no legal 

control over the payment of such wages.” 26 C.F.R. § 31.3401(d)-1(f). Finally, the determining 

factor whether a third party is an agent of the employer is whether the third-party bears an 

insurance risk. 26 C.F.R. § 31.3401(a)-1(b)(1).4

DISCUSSION 

Here, there is no dispute that the Plan is both self-insured and that the LTD coverage was 

paid for by the employer. Adkins Decl. ¶ 2; AR 807. Therefore, this is not a case where a thirdparty – like an insurance company – is being paid an insurance premium to provide employees 

LTD coverage and withholding is at the option of the beneficiary. But see 26 C.F.R. §§

31.3401(a)-1(a)(8) & (b)(1); 26 U.S.C. § 3402(o). Instead, this is a situation where the Plan – as 

either the employer or as the agent of the employer – is making that payment. 26 C.F.R. § 

31.3401(d)-1(f); 26 C.F.R. § 31.3401(a)-1.5

 The LTD payments, therefore, are wages subject to 

 

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For “sick pay” payments made by third-parties, the provisions of 26 U.S.C. § 3402(c) govern. 

See 26 C.F.R. § 31.3401(a)-1(a)(8). 

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“If the third party bears no insurance risk and is reimbursed on a cost plus fee basis, the third 

party is an agent of the employer even if the third party is responsible for making determinations 

of the eligibility of individual employees of the employer for sick pay payments. If the third party 

is paid an insurance premium and not reimbursed on a cost plus fee basis, the third party is not an 

agent of the employer, but the third party is a payor of third party sick pay for purposes of 

voluntary withholding from sick pay under sections 3402(o).” 26 C.F.R. § 31.3401(a)-1(b)(1). 

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 Because the employer paid for the LTD coverage, the LTD payments could also be considered 

“attributable to contributions of the employer which were not includible in the gross income of the 

employee” and therefore considered as gross income subject to mandatory withholding. 26 U.S.C. 

105(a); 26 C.F.R. § 31.3401(a)-1(a)(8). Plaintiff does not dispute that AT&T’s contributions to 

the Plan were not includible in her gross income. 

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mandatory withholding. 26 C.F.R. § 31.3401(a)-1(a)(8). 

The fact that the judgment did not specifically allow the Plan to withhold income tax does 

not change this analysis. The only case relied on by plaintiff for this proposition, Redfield v. Ins. 

Co. of N. Am., 940 F.2d 542, 548 (9th Cir. 1991), simply held that a judgment in an Age 

Discrimination and Employment Act case was properly considered tort-like damages exempt 

from gross income (and withholding). Not only was that case superseded on its merits by Comm’r 

v. Schleier, 515 U.S. 323 (1995), it did not address whether a judgment is satisfied where taxes are 

withheld from the amount of a judgment awarded by a court. 

CONCLUSION 

For the foregoing reasons, I find that the judgment of $55,861.69 in long-term disability 

benefits with prejudgment interest has been fully satisfied. While the Plan asks that the abstracts 

of judgment be VACATED, because the docket in this case is now clear that the judgment and 

award of attorney’s fees have been satisfied, that request is DENIED as moot.6 

IT IS SO ORDERED.

Dated: March 13, 2015 

______________________________________ 

WILLIAM H. ORRICK 

United States District Judge 

 

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 I note that there is no evidence that plaintiff has recorded the abstracts of judgment with any 

county. If plaintiff has, and has not notified or does not notify those counties of the satisfaction of 

the judgment, the Plan may invoke the remedies provided by California Code of Civil Procedure § 

724.050. 

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