Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-07592/USCOURTS-cand-3_06-cv-07592-2/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 28:1132 E.R.I.S.A.

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

ENIKO PRAKASH,

Plaintiff,

 v.

PULSENT CORPORATION EMPLOYEE LONG

TERM DISABILITY PLAN,

Defendant. 

SUN LIFE FINANCIAL and SUN LIFE

ASSURANCE COMPANY OF CANADA,

Real Party in Interest. ___________________________________

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Case No. 06-7592 SC

ORDER DENYING

COUNTER-DEFENDANTS'

MOTION TO DISMISS THE

COUNTERCLAIM

I. INTRODUCTION

Plaintiff Eniko Prakash ("Plaintiff") filed a complaint for

ERISA benefits on December 12, 2006. Docket No. 1. On February

26, 2007, Real Party in Interest Sun Life Assurance Company dba

Sun Life Financial ("Counter-claimant" or "Sun Life") filed an

answer to the complaint which asserted counter-claims against

Plaintiff for intentional and negligent misrepresentation and

concealment, and against Plaintiff and her husband Adityo Prakash

for conspiracy to commit fraud. Docket No. 8. 

Presently before the Court is a motion by Eniko and Adityo

Prakash ("Counter-Defendants" or "Prakashes") to dismiss the

counter-claims under Rule 12(b)(6) of the Federal Rules of Civil

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Procedure for failure to state a claim upon which relief can be

granted. Docket No. 17. Sun Life opposed the motion and the

Prakashs filed a reply. Docket Nos. 23, 25.

For the reasons discussed herein, the Court DENIES CounterDefendants' Motion to Dismiss.

II. BACKGROUND

Adityo and Eniko Prakash co-founded Pulsent Corporation in

approximately 1998. Answer, 5. Eniko was a participant in the

Pulsent Corporation Employee Benefit Plan (the "Plan"), a nowdefunct Employee Retirment Income Security Act ("ERISA") plan that

provided long-term disability ("LTD") benefits to eligible

employees. Id. Sun Life funded the benefits under the Plan and

made claims determinations as an ERISA fiduciary. Id. Eniko

received short-term disability benefits under the Plan from June

12, 2002 through September 10, 2002. Id. at 6. Eniko then

received LTD benefits from September 11, 2002 through March 11,

2005 when Sun Life terminated benefits based on its determination

that Eniko was capable of working. Id. While investigating

Eniko's claim, Sun Life allegedly uncovered evidence that Eniko

had been capable of working for much of the time she received

benefits. Id. at 6-9. Sun Life filed its counter-claim to

recover the payments it made to Eniko which it claims are based on

fraud, concealment, and misrepresentation. 

III. LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6), a motion to

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dismiss can be granted if the plaintiff fails "to state a claim

upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). 

When evaluating a motion to dismiss, the court accepts the facts

as stated by the nonmoving party and draws all inferences in its

favor. See Everest & Jennings, Inc. v. Am. Motorists Ins. Co., 23

F.3d 226, 228 (9th Cir. 1994). Furthermore, courts must assume

that all general allegations "embrace whatever specific facts

might be necessary to support them." Peloza v. Capistrano Unified

Sch. Dist., 37 F.3d 517, 521 (9th Cir. 1994). At the pleading

stage, the plaintiff "need only show that the facts alleged, if

proved, would confer standing upon him." Warren v. Fox Family

Worldwide, Inc., 328 F.3d 1136, 1140 (9th Cir. 2003). If a

complaint is dismissed for failure to state a claim, "leave to

amend should be granted unless the court determines that the

allegation of other facts consistent with the challenged pleading

could not possibly cure the deficiency." Schreiber Distrib. Co.

v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986).

Thus, in reviewing Counter-Defendants' motion to dismiss, the

Court must assume the truth of all factual allegations contained

in the counter-claims and construe those facts in the light most

favorable to Sun Life. See Everest & Jennings, 23 F.3d at 228.

IV. DISCUSSION

The issue presented by Counter-Defendants' motion to dismiss

is whether Sun Life's state law claims for fraud, concealment, and

misrepresentation against Plan participants are preempted by

ERISA. The Prakashes assert that ERISA's broad preemption

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provisions "supersede any and all State laws insofar as they may

now or hereafter relate to any employee benefit plan. . . ." 29

U.S.C. § 1144(a). A state law "relates to" an employee benefit

plan "if it has a connection with or reference to such a plan." 

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983). In

response, Sun Life asserts that Congress did not intend ERISA

preemption to extend so far as to void state law suits protecting

against fraud and leave Sun Life with no legal remedy. While

there are no Ninth Circuit decisions directly on point, the

Seventh and Second Circuits have held that such claims are not

preempted. Those holdings are consistent with Ninth Circuit

authority addressing very similar issues.

In Trustees of the AFTRA Health Fund v. Biondi, 303 F.3d 765,

770 (7th Cir. 2002), the court confronted a situation in which the

trustees of an ERISA plan sued a participant alleging that he

misrepresented that he was still married to his ex-wife so she

could continue receiving medical benefits. The court held that

the state law claims did not "relate to" the plan under the

framework set forth by the Supreme Court in N.Y. State Conference

of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., 514

U.S. 645, 658-60 (1995). Applying the Travelers criteria, the

Biondi court stated, "by no stretch of the imagination can the

Trustees' claim be said to mandate employee benefit structures or

their administration, or bind plan administrators to particular

choices or preclude uniform administrative practices." Biondi,

303 F.3d at 775. 

In reaching its conclusion, the Biondi court found that a

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plan participant has "a separate and distinct duty under [state]

tort law" to avoid misrepresentations to the plan. Id. at 777. 

The Court stated, "[a] state law claim is not expressly preempted

under § 1144(a) merely because it requires a cursory examination

of ERISA plan provisions." Id. at 780. Finally, "far from

thwarting ERISA's stated statutory objectives, the Trustees'

common law fraud claim is an attempt to protect the financial

integrity of the Fund, which is certainly in the Plan

participants' and beneficiaries' best interests, as well as being

consistent with the Trustees' fiduciary obligations under ERISA." 

Id. at 775.

Similar to the Seventh Circuit in Biondi, the Second Circuit

denied preemption of state law fraud claims in Geller v. County

Line Auto Sales, Inc., 86 F.3d 18, 22-23 (2d Cir. 1996). There, a

defendant registered his girlfriend as a full-time employee even

though she did not work at the company. Geller, 86 F.3d at 20. 

In reliance, plaintiffs enrolled the girlfriend in the benefits

plan and ended up paying numerous fraudulent medical expenses. 

Id. The Geller court found that "allowing the plaintiffs to

pursue their common law fraud claim would in no way compromise the

purpose of Congress and does not impede federal control over the

regulation of employee benefit plans." Id. at 23. In addition,

"the essence of the plaintiffs' fraud claim does not rely on the

pension plan's operation or management. . . . The plan was only

the context in which this garden variety fraud occurred." Id. 

The holdings in Biondi and Geller are consistent with the

Ninth Circuit's interpretation of ERISA preemption of state law

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claims. See Ariz. State Carpenters Pension Trust Fund v.

Citibank, 125 F.3d 715, 722-24 (9th Cir. 1997). In Citibank,

trustees sued Citibank, alleging that the bank had breached its

custodial agreements. The court held that ERISA did not preempt

plaintiffs' state law claims for breach of contract, negligence,

and fraud because those claims fell outside the three areas of

concern identified by the Supreme Court in Travelers. Id. at 724. 

The court noted that "there are limits to the unusually broad

preemptive sweep we have afforded ERISA." Id. at 723 (quoting

Concha v. London, 62 F.3d 1493, 1505 (9th Cir. 1995)). As such,

claims arising from state laws of general application are not

preempted when common law imposes a duty of care, regardless of

the nature of the parties. See Citibank, 125 F.3d at 724.

The Court finds that Sun Life's state law claims do not

"relate to" the Plan and are not preempted by ERISA based on the

principles articulated in Citibank, Geller, and Biondi. 

Evaluation of Sun Life's claims does not require interpretation of

Plan documents or ERISA, it merely requires evaluation of the

factual allegations surrounding potential fraud. 

Counter-Defendants also assert that Sun Life lacks standing

to pursue its claims and should have asserted its claim before

payment was made. Both of Counter-Defendants' remaining arguments

fail. First, Sun Life is a "real party in interest" and is thus

permitted to sue under California law. See Gantman v. United Pac.

Ins. Co., 284 Cal. Rptr. 188, 191 (Cal. Ct. App. 1991). Moreover,

the parties filed a stipulation expressing their agreement that

the Pulsent Plan no longer exists and that Sun Life is responsible

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for any judgment in Plaintiff's favor. See Docket No. 19. Sun

Life, in actively protecting its rights in this case, may present

a defense and assert counter-claims. Second, Sun Life asserted

its claims in a timely fashion. According to the counter-claims,

Sun Life could not have discovered that Eniko was uninjured at the

time the claims were made because of the alleged fraud and

concealment. It is not reasonable to preclude the counter-claims

because Sun Life reasonably relied on statements of the

beneficiaries.

V. CONCLUSION

For the reasons discussed herein, Counter-Defendants' Motion

to Dismiss is DENIED.

IT IS SO ORDERED.

Dated: June 28, 2007 

UNITED STATES DISTRICT JUDGE

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