Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_09-cv-02525/USCOURTS-azd-2_09-cv-02525-0/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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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Lenore Conklin, an individual, 

Plaintiff, 

vs.

Continental American Insurance

Company, a corporation, 

Defendant. 

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No. CV09-2525-PHX-DGC

ORDER

On January 20, 2010, Plaintiff Lenore Conklin filed a motion to remand this case to

state court. Dkt. #12. The motion is fully briefed. Dkt. ##21, 22-1. No party has requested

oral argument. For reasons that follow, the Court will grant the motion.

I. Background.

Plaintiff had a cancer insurance policy (“the Plan”) with Defendant Continental

American Insurance Company. She obtained the policy through her employment with

Southwest Airlines. Dkt. #4 at 7-8. The Plan is a “Group Cancer Insurance Policy” obtained

by Plaintiff’s union – “IAMAW Air Transport District 142” (“the Union”) – on behalf of

union members who are employed by Southwest Airlines and who decide to enroll in the

Plan. Dkt. #21 at 2; Dkt. #21-1 at 2. Participation in the Plan is completely voluntary, and

the Union itself makes no monetary contributions to the Plan. Dkt. #21 at 2, 8-12.

In 2006, Plaintiff added her husband to her cancer policy under “Plan 3,” which

entitled them to receive “$10,000 on the first occurrence of cancer and a limit of $50,000 for

chemotherapy and radiation treatments.” Dkt. #4 at 8. On December 19, 2007, Plaintiff’s

Case 2:09-cv-02525-DGC Document 24 Filed 04/20/10 Page 1 of 9
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husband was diagnosed with lung cancer, and also began undergoing treatment to remove

a tumor from his brain. Id. Continental initially paid Plaintiff the cancer policy benefits

under “Plan 3,” but later contacted Plaintiff and stated that it had overpaid the benefit and

demanded reimbursement of $5,499.13 within thirty days. Id. at 9. When Plaintiff

questioned the overpayment, Continental informed her that her husband was actually insured

under “Plan 2” instead of “Plan 3,” which provided significantly lower benefits. Id. 

Based on this discrepancy and Continental’s failure to pay full “Plan 3” benefits,

Plaintiff sued Continental in Arizona state court, alleging that Continental breached its

insurance contract and its duty of good faith and fair dealing. Id. at 10-12. Continental

removed the action to this Court pursuant to 28 U.S.C. § 1331 on the ground that “Plaintiff’s

claims, in whole or in part, arise under and are completely preempted by the Employee

Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001, et. seq., thus

supplying federal question jurisdiction.” Dkt. #1 at 1. Plaintiff seeks remand to state court

on the ground that Continental has failed to show that the Plan is actually governed by

ERISA. Dkt. #12.

II. Legal Standard.

Pursuant to the removal statute, 28 U.S.C. § 1441, any civil action brought in state

court over which the federal district courts have original jurisdiction may be removed to the

federal district court where the action is pending. 28 U.S.C. § 1441(a). Courts strictly

construe the statute against removal jurisdiction. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th

Cir. 1992). Indeed, there is a “strong presumption” against removal and “[f]ederal

jurisdiction must be rejected if there is any doubt as to the right of removal in the first

instance.” Id. Defendant bears the burden of establishing that removal is proper. Id. “If at

any time before final judgment it appears that the district court lacks subject matter

jurisdiction, the case shall be remanded.” 28 U.S.C. § 1447(c).

The question before the Court is whether Continental has met its burden of showing

that the Plan is an “employee welfare benefit plan” governed by ERISA. ERISA defines an

“employee welfare benefit plan” as “[a]ny plan, fund, or program which . . . is . . . established

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or maintained by an employer or by an employee organization . . . to the extent that such

plan, fund, or program was established or is maintained for the purpose of providing for its

participants . . . through the purchase of insurance or otherwise . . . medical, surgical, or

hospital care or benefits[.]” 29 U.S.C. § 1002(1). The question in this case is whether the

Plan was established or maintained by “an employee organization” – the Union – within the

meaning of this statute. “The existence of an ERISA plan is a question of fact, to be

answered in the light of all the surrounding circumstances from the point of view of a

reasonable person.” Stuart v. UNUM Life Ins. Co. of Am., 217 F.3d 1145, 1149 (9th Cir.

2000) (internal quotations and citation omitted).

Under relevant regulations, a plan is not governed by ERISA if four “safe harbor”

conditions are satisfied:

(1) No contributions are made by an employer or employee organization; 

(2) Participation in the program is completely voluntary for employees or

members; 

(3) The sole functions of the employer or employee organization with respect

to the program are, without endorsing the program, to permit the insurer to

publicize the program to employees or members, to collect premiums through

payroll deductions or dues checkoffs and to remit them to the insurer; and 

(4) The employer or employee organization receives no consideration in the

form of cash or otherwise in connection with the program, other than

reasonable compensation, excluding any profit, for administrative services

actually rendered in connection with payroll deductions or dues checkoffs. 

29 C.F.R. § 2510.3-1(j). The Ninth Circuit has “uniformly adopted the position” that a plan

is conclusively governed by ERISA “when an employer fails to satisfy any one of the four

requirements of the safe harbor regulation.” Stuart, 217 F.3d at 1153. 

III. Analysis.

Continental argues that the Plan is covered under ERISA because requirement three

of the safe harbor is not satisfied. Because Continental does not contend that requirements

one, two, and four are not satisfied, the Court will assume they are satisfied.

Continental contends that the third requirement is not satisfied because (1) the Union

did not “solely” permit Continental to publicize the Plan, collect premiums, and remit them,

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and (2) the Union endorsed the Plan. Dkt. #21 at 9-13. The Court disagrees.

A. “Solely” Permit.

Continental argues that “[t]he plain language of the safe harbor regulation is clear that

the employer’s functions with respect to the program must be limited ‘solely’ to permitting

the insurer to publicize the program, collecting premiums through payroll deductions and

remitting them to the insurer.” Dkt. #21 at 9 (citing 29 C.F.R. § 2510.3-1(j)(3)). It argues

that the Union went “far beyond these narrow confines by submitting an application for the

Group Cancer Policy, contracting with [Continental] to provide Plan benefits to its members,

serving as Policy holder, communicating with its members about the benefits, negotiating the

terms of coverage, actively engaging in the enrollment process and being involved in

individual claims.” Dkt. #21 at 10.

Continental cites several cases from outside the Ninth Circuit which, it contends, show

that an employer’s functions must be “solely” limited to the express language of 29 C.F.R.

§ 2510.3-1(j)(3). See Hansen v. Cont’l Ins. Co., 940 F.2d 971, 977 (5th Cir. 1991); Butero

v. Royal Maccabees Life Ins. Co., 174 F.3d 1207, 1213 (11th Cir. 1999); Anderson v. UNUM

Provident Corp., 369 F.3d 1257, 1265-67 (11th Cir. 2004). The Ninth Circuit, however, has

stated that an “employer’s failure to limit itself to the activities explicitly outlined in the third

requirement of the safe harbor regulation . . . [is] not conclusive to determining whether an

ERISA plan was established.” Stuart, 217 F.3d at 1153. Even if the third requirement has

not been complied with in every particular, the evidence could still lead “a reasonable person

to conclude that the employer satisfied the third requirement of the safe harbor regulation.”

Id. In making these statements, the Ninth Circuit was discussing its decision in Zavora v.

Paul Revere Life Insurance Co., 145 F.3d 1118 (9th Cir. 1998). The question before the

court in Zavora was whether the third requirement was satisfied even though the employer

served as the plan administrator, an activity that went beyond the “sole function” language

of the third requirement. Zavora held that the employer’s role as plan administrator was not

dispositive because evidence submitted by the plaintiff suggested that the employer was an

administrator in name only. Zavora, 145 F.3d at 1121. The employer’s title of plan

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administrator had to be “considered along with all the surrounding circumstances to

determine whether an ERISA plan exists.” Id. (internal quotation and citation omitted). As

the Ninth Circuit explained in Stuart: “Zavora instructs that an employer can be a plan

administrator in name only and still satisfy the four requirements of the safe harbor

regulation, even though being a plan administrator is not listed in the safe harbor’s third

requirement.” 217 F.3d at 1153.

This law makes clear that strict adherence to the precise language of the third

requirement is not necessary. Courts must consider all of the surrounding circumstances

when deciding whether the safe harbor requirements have been satisfied. The Court

therefore cannot conclude that the Plan fails the third requirement simply because the Union

did not solely limit itself to the activities specified in the third requirement. Rather, the Court

must examine the Union’s activities and determine whether they are such that a reasonable

person could conclude that the third requirement is met. See Stuart, 217 F.3d at 1153. 

As discussed above, Continental argues that the Union engaged in the following acts

that went beyond the confines of the third requirement: (1) it submitted the insurance

application, (2) it contracted with Continental, (3) it served as the policy holder, (4) it

communicated with its members about the benefits, (5) it negotiated the terms of coverage,

(6) it engaged in the enrollment process, and (7) it became involved with individual claims.

Dkt. #21 at 10. Applying the reasonable person standard, these activities do not show that

the Plan fails the third requirement. 

Acts (1), (2), (4), (5), and (6), taken together, show only that the Union arranged for

the coverage and then advertised it. The acts do not necessarily establish that there is an

ERISA plan so long as the Union makes no monetary contributions on behalf of its members,

which it does not. See Credit Mangers Assoc. of S. Cal. v. Kennesaw Life & Accident Ins.

Co., 809 F.2d 617, 625 (9th Cir. 1987) (suggesting that an employer that “arrange[s] for a

‘group-type insurance program’” does not create an ERISA plan if it thereafter is a mere

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1

 In Stuart, the Ninth Circuit stated that courts should consider not only the four

requirements of the safe harbor, but also ERISA’s “conventional tests.” Stuart, 217 F.3d at

1145 n.4. Stuart does not identify the conventional tests, but does cite, among other cases,

to Hansen v. Continental Insurance Co., 940 F.2d 971, 978 (5th Cir. 1991), in which the

conventional test is based on “the employer . . . and its involvement with the administration

of the plan.” Hansen states that, “considering the history, structure and purposes of ERISA,

we cannot believe that that Act regulates bare purchases of health insurance where . . . the

purchasing employer neither directly nor indirectly owns, controls, administers or assumes

responsibility for the policy or its benefits.” 940 F.2d 971 (quoting Taggart Corp. v. Life and

Health Benefits Admin., Inc., 617 F.2d 1208 (5th Cir. 1980)) (ellipses in original). As

discussed below, the Union’s involvement effectively ended after it negotiated and obtained

the Plan for its members. Given Hansen’s discussion of the traditional test, the Court cannot

conclude that the Union’s having arranged for the Plan brings it outside the third requirement

or renders the Plan subject to ERISA.

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advertiser who makes no contributions on behalf of its employees).1

 

As to act (3), the parties dispute whether the Union was actually the policyholder.

The policy names the policyholder as “IAMAW Air Transport District 142, For Members

who are Employees of Southwest Airlines.” Dkt. #21-1 at 2 (emphasis added). To the extent

the Union can be characterized as the policyholder at all, this language makes clear that it

holds the policy only for the Union members who voluntarily choose to purchase the policy’s

coverage and pay their own premiums. Continental does not contend that the Union itself

is an insured under the policy, pays premiums, or is entitled to benefits. Thus, the Union is

the policyholder in name only – the true owners and beneficiaries are the Union members

who choose to enroll. If an employer’s being a plan administrator in name only does not

exclude a plan from requirement three of the safe harbor, as the Ninth Circuit held in Zavora,

then being a policyholder in name only does not either. Zavora, 145 F.3d at 1121.

As to act (7), the only evidence that Continental has provided of the Union’s

“involvement” with individual claims is that, on a few occasions, a Union representative

called Continental to request a form or inquire about a claim for a member. Dkt. #21 at 8.

Such activity does not approach the level of involvement of plan administrators, and shows

little more than the Union occasionally seeking to assist its members, something unions do

frequently on a variety of employment-related issues. 

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2

 Plaintiff also contends that the Plan does not fall under ERISA because it does not

meet a different Ninth Circuit “test to determine whether a plan is a federally pre-empted

ERISA plan[.]” Dkt. #12 at 3. Because Continental does not seek to utilize this test, the

Court need not consider it.

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In addition to the insufficiency of the facts discussed above, the Court notes that the

Union, in introducing the Plan to its members, expressly advised as follows:

Your union wants you to be aware that these benefits exist and that they may

be helpful to you. Your union, however, is not a party to any agreement

entered into by you and insurance company and is not responsible in any way

for the operation or administration of any [p]lans. 

Dkt. #12-1 at 3. 

Continental concedes that three of the four safe harbor requirements are satisfied – the

Union made no contributions to the Plan, participation by Union members was completely

voluntary, and the Union received no consideration for the Plan. The Court concludes that

the Union’s actions were consistent with the spirit and intent of the third requirement – it

arranged for the insurance coverage, permitted Continental to publicize the Plan to Union

members, collected premiums, and remitted them to the insurance company. Continental

bears the burden of proof as the party seeking to retain federal court jurisdiction. It has failed

to show that the Plan falls outside the third requirement of the safe harbor and therefore is

subject to ERISA.2

B. Endorsement.

Continental also argues that the third requirement is not established because the Union

endorsed the Plan. In support of its argument, Continental cites two cases – Thompson v.

American Home Assurance Co., 95 F.3d 429, 436 (6th Cir. 1996), and Johnson v. Watts

Regulator Co., 63 F.3d 1129, 1136 (1st Cir. 1995). Even if these two cases set out the Ninth

Circuit standard, which Continental has not shown, the Court finds that they do not support

a finding that the Union endorsed the program in this case. In Johnson and Thompson, the

courts stated that a finding of endorsement requires more than a recommendation of a plan

and that “the proper focus was on whether employees could reasonably conclude that the

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employer had endorsed the policy based on their observation of the employer’s activities in

connection with the plan.” Thompson, 95 F.3d at 436 (citing Johnson, 63 F.3d at 1134, 1137

n.6). In this case, members received announcements of the Plan on Union letterhead.

Dkt. #21-2 at 6, 12, 15. Continental argues that “[n]o participant who received the summary

with the Union’s logo on the front page and a letter from the Union on the second page

would fail to understand that the Union, if not explicitly guarantying the benefits, was

endorsing the program generally[.]” Dkt. #21 at 11. The Court does not agree. As noted

above, the Union letter introducing the Plan specifically stated that the Union wanted the

members to “be aware that these benefits exist and that they may be helpful to you.”

Dkt. 12-1 at 3. The letter explained, however, that the Union “is not a party to any agreement

entered into by you and insurance company and is not responsible in any way for the

operation or administration of any [p]lan.” Id. The Court does not find this to be

endorsement under Thompson and Johnson.

Moreover, in examining the applicable Ninth Circuit law, the Court has found only

three situations where the Ninth Circuit has found that an employer endorsed a plan, none

of which apply here: (1) when the employer is the administrator of the plan, see Kanne v.

Conn. Gen. Life Ins. Co., 867 F.2d 489, 493 (9th Cir. 1988) (stating that, “as the

administrator of the plan,” the employer endorsed it); Sarraf v. Standard Ins. Co., 102 F.3d

991, 993 (9th Cir. 1996) (stating that employer endorsed the plan by serving as

administrator), (2) when the employer “endorse[s] the plan as an ERISA plan” by, for

example, regularly stating that the plan is an ERISA plan or by filing required ERISA

governmental paperwork, see Pacificare Inc. v. Martin, 34 F.3d 834, 837 (9th Cir. 1994), and

(3) when the employer requires the employees to participate in the plan, see Silvera v. Mutual

Life Ins. Co. of N.Y., 884 F.2d 423, 426 (9th Cir. 1989). Continental has failed to show that

any of these circumstances exist.

IV. Conclusion.

Continental has failed to carry its burden of showing that the Plan is governed by

ERISA. As a result, the Court cannot find that there is no “doubt as to the right of removal

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in the first instance.” Gaus, 980 F.2d at 566. 

IT IS ORDERED that Plaintiff’s motion to remand (Dkt. #12) is granted.

DATED this 20th day of April, 2010.

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