1

By consent of the parties, the matter was decided by a

United States Magistrate Judge. See 28 U.S.C. § 636(c)(3). 

No. 95-2064

_____________

The Prudential Insurance *

Company of America, *

 *

Appellant, * Appeal from the United 

 * States District Court for

v. * the Eastern District of

 * Missouri.

John Doe, individually and as *

parent and guardian ad litem *

for a minor; Jane Doe, a minor, *

 *

Appellees. *

________________

 Submitted: November 15, 1995

 Filed: February 7, 1996 ________________

Before RICHARD S. ARNOLD, Chief Judge, BRIGHT and FAGG, Circuit

Judges.

________________

BRIGHT, Circuit Judge.

The Prudential Insurance Company of America (Prudential) filed

this declaratory judgment action seeking an interpretation of

certain provisions of an "employee benefit plan" under the

applicable provisions of the Employee Retirement Income Security

Act (ERISA), 29 U.S.C. §§ 1001-1461. The district court1

determined that Doe was not a "participant" or a "beneficiary", as

those terms are defined by ERISA, and thus did not have standing to
 2

These names are pseudonyms.

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sue under the statute. The district court dismissed the action,

and Prudential appealed. We hold that Doe is a "beneficiary", and

remand to the district court for further proceedings. 

I. BACKGROUND

John Doe is an attorney and the controlling shareholder in the

law firm of Doe & Roe, P.C.2 Doe & Roe is an Illinois professional

corporation with approximately twenty individuals on its payroll.

John Doe and John Roe serve as the exclusive managers of the firm.

The firm has a group insurance policy with Prudential which

provides medical benefits to its employees and their eligible

dependents. Doe & Roe, P.C. is listed on the insurance contract as

the contract holder. 

When Doe's daughter Jane received inpatient hospitalization

for mental disorders, Prudential limited its payments to the first

thirty days of hospitalization. Doe claimed that this was an

improper limitation and sought review of the denial of further

payment. The Prudential's Southwestern Group Operations Regional

Appeal Committee upheld the original denial of the claim. Upon

this exhaustion of administrative remedies, Prudential immediately

sought a declaratory judgment, pursuant to ERISA, that the decision

of the review panel was proper.

The district court dismissed the action. Although the

district court indicated that an employee benefit plan, as defined

by ERISA, existed in this case, it concluded that Doe did not have

standing to sue. To have standing to sue under ERISA, a party must

be either a "participant", a "beneficiary" or a "fiduciary". The

district court determined that Doe was an "employer" and thus

neither he nor his daughter fit into any of these categories.

Presumably, the district court concluded that although the policy
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was an ERISA plan as to the firm's employees, it constituted an

insurance contract governed by state law as regards Doe. Because

the court concluded that Doe could not have filed suit under ERISA,

it dismissed Prudential's declaratory judgment action for lack of

subject matter jurisdiction. 

II. DISCUSSION

ERISA applies to all employee benefit plans established or

maintained by an employer engaged in commerce or any industry or

activity affecting commerce. 29 U.S.C. § 1003(a)(1). An employee

benefit plan is defined as "an employee welfare benefit plan or an

employee pension benefit plan or a plan which is both . . . ." 29

U.S.C. § 1002(3). ERISA describes an "employee welfare benefit

plan" as 

any plan, fund, or program . . . established or maintained by an employer or by an employee organization, or

by both, to the extent that such plan, fund, or program

was established or is maintained for the purpose of

providing for its participants or their beneficiaries,

through the purchase of insurance or otherwise, (A)

medical, surgical, or hospital care or benefits, or

benefits in the event of sickness, accident, disability,

death or unemployment . . . .

29 U.S.C. § 1002(1). The parties do not dispute that an "employee

welfare benefit plan" exists. Nonetheless, the district court

determined that the plan, as regards Doe, is not covered by ERISA.

A private individual claiming benefits due under a benefit

plan subject to ERISA must be either a "participant" or a

"beneficiary." 29 U.S.C. § 1132(a). ERISA defines "participant"

as: 

any employee or former employee of an employer . . . who

is or may become eligible to receive a benefit of any

type from an employee benefit plan which covers employees

of such employer or members of such organization, or
 3

ERISA defines an "employee" as "any individual employed by

an employer." 29 U.S.C. § 1002(6). The Supreme Court has

recently stated that this definition of "employee" is "completely

circular and explains nothing." See Nationwide Mut. Ins. Co. v.

Darden, 503 U.S. 318, 323 (1992). The Court therefore adopted a

common law agency test for determining who qualifies as an

employee under ERISA. Id. 

 4ERISA defines "employer" as "any person acting directly as

an employer, or indirectly in the interest of an employer, in

relation to an employee benefit plan; and includes a group or

association of employers acting for an employer in such

capacity." 29 U.S.C. § 1002(5). 

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whose beneficiaries may be eligible to receive any such

benefit.3

29 U.S.C. § 1002(7). ERISA defines "beneficiary" as: a person

designated by a participant, or by the terms of an employee benefit

plan, who is or may become entitled to a benefit thereunder." 29

U.S.C. § 1002(8).

Based largely on Doe's status as the controlling shareholder

of the corporation, the district court determined that Doe is an

"employer"4 and not an "employee", and as such he cannot be a

"participant" or a "beneficiary" of an ERISA plan. The district

court concluded that since Doe could not have brought an ERISA

claim, Prudential is without standing to bring this declaratory

judgment action. 

When the district court reached this conclusion, it did not

have the benefit of this court's recent opinion in Robinson v.

Linomaz, 58 F.3d 365 (8th Cir. 1995). See also, Peterson v.

American Life & Health Ins. Co., 48 F.3d 404 (9th Cir.), cert.

denied, 116 S. Ct. 377 (1995). In Robinson, this court determined

that the sole shareholders of a corporation were "beneficiaries" of

an ERISA plan because they were designated to receive benefits by

the terms of the employee benefit plan. Id. at 369-70. Thus, as

beneficiaries, the sole shareholders had standing to maintain suit
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under ERISA. The court declined to rule on the employer/employee

distinction, finding "beneficiary" status sufficient to bring the

action under ERISA. Id. at 369.

John Doe is enrolled on the group insurance policy issued by

Prudential. The policy apparently designates Ms. Doe, his

daughter, a beneficiary of the plan as a "qualified dependent."

Since both John and his daughter are designated to receive benefits

under the terms of the "employee benefit policy", they are

"beneficiaries" within the meaning of ERISA and have standing to

sue under its provisions. 

In defense of the district court's judgment, Doe argues that

this court's decision in Robinson failed to take into account

ERISA's "anti-inurement" provision. 29 U.S.C. § 1103(c)(1).

Section 1103(c)(1) provides, 

Except as provided in paragraph (2), (3), or (4) or

subsection (d) of this section, or under sections 1342

and 1344 of this title (relating to termination of

insured plans), or under section 420 of title 26 (as in

effect on January 1, 1995), the assets of a plan shall

never inure to the benefit of any employer and shall be

held for the exclusive purposes of providing benefits to

participants in the plan and their beneficiaries and

defraying reasonable expenses of administering the plan.

Id. Doe argues that this provision evidences ERISA's statutory

purpose of excluding the controlling owners of a business from

falling within the umbrella of ERISA protections and remedies. 

Other circuits have cited the anti-inurement clause in

determining that an "employer" did not have standing to sue for

health insurance benefits under ERISA. Fugarino v. Hartford Life

and Acc. Ins. Co., 969 F.2d 178, 185-86 (6th Cir. 1992), cert.

denied, 113 S. Ct. 1401 (1993); Giardono v. Jones, 867 F.2d 409,

411-12 (7th Cir. 1989) (stating that when employer files suit in
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his own interest, he risks running afoul of the requirement that

assets of plan not inure to benefit of employer). Fugarino

concludes that, as regards an "employer," state law and not ERISA

governs the health insurance policy. 969 F.2d at 186. 

Although we would likely find that Doe is an "employee" and

thus a "participant" under the framework of ERISA, see Madonia v.

Blue Cross & Blue Shield of Virginia, 11 F.3d 444, 448-50 (4th Cir.

1993), cert. denied, 114 S. Ct. 1401 (1994), even assuming that Doe

should be characterized as an "employer," we conclude that the

anti-inurement provision constitutes an insufficient basis for

departing from this court's holding in Robinson. 

First, Robinson's holding corresponds to the plain language of

the statute. The statute defines "beneficiary" to include those

designated "by the terms of an employee benefit plan" to receive

benefits. 29 U.S.C. § 1002(8). Second, the "anti-inurement"

provision does not seem directly applicable to the collection of

health insurance benefits. The provision states that no asset of

the plan may inure to the benefit of the employer. 29 U.S.C. §

1103(c)(1). The provision appears intended to restrict the use of

assets accumulating in trust and pension funds. Section 1103 is

headed "Establishment of trust," and the exceptions to the antiinurement rule, listed within section 1103(c)(1) itself, deal with

the return of contributions and the distribution of residual

assets. 

Finally, the legislative history involving the section

indicates congressional concern over the wrongful diversion of

trust assets and the administrative integrity of benefit plans.

Section 1103(c)(1) and 29 U.S.C. § 1104(a) deal with fiduciary

duties for plan administrators and employers. Boyle v. Anderson,

68 F.3d 1093, 1102 (8th Cir. 1995). Congress included these

provisions in order to make the law of trusts applicable to the

plans and to eliminate "`such abuses as self-dealing, imprudent
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investing, and misappropriation of plan funds.'" Id. (quoting Fort

Halifax Packing Co. v. Coyne, 482 U.S. 1, 15 (1987)). 

The Boyle court stated that the legislative history made it

clear that the legislation imposed strict fiduciary obligations on

those having discretion or responsibility for the management or

disposition of pension or welfare plan assets. Id. In summarizing

the ERISA conference report, Senator Williams stated that "`the

objectives of these provisions are to make applicable the law of

trusts; to prohibit exculpatory clauses that have often been used

in this field; to establish uniform fiduciary standards to prevent

transactions which dissipate or endanger plan assets; and to

provide effective remedies for breach of trust.'" Id. (quoting 120

Cong. Rec. 29,932 (1974)). See also, H.R. Rep. No. 870, 93d Cong.,

2d Sess., reprinted in 1974 U.S.C.C.A.N. 4670, 4681; S. Rep. No.

383, 93d Cong., 2d Sess., reprinted in 1974 U.S.C.C.A.N. 4890,

4902-03. None of these concerns would force the exclusion of a

controlling shareholder from the terms of an ERISA group health

policy. 

The Robinson court indicated a policy rationale which

supported allowing the sole shareholders to fall within an ERISA

policy. The court stated "`[t]o hold otherwise would create the

anomaly of requiring some insureds to pursue benefit claims under

state law while requiring others covered by the identical policy to

proceed under ERISA.'" Robinson, 58 F.3d at 369 (quoting Peterson,

48 F.3d at 409). In Madonia, the Fourth Circuit reached a similar

conclusion: "once a plan has been established, it would be

anomalous to have those persons benefitting from it governed by two

disparate sets of legal obligations." 11 F.3d at 450. 

Doe also argues that ERISA does not permit an insurance

company to bring a declaratory judgment action. Doe may be correct

that nothing in ERISA specifically grants a fiduciary the authority

to file a declaratory judgment action to interpret a policy. See
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Transamerica Occidental Life Ins. Co. v. DiGregorio, 811 F.2d 1249,

1251-53 (9th Cir. 1987); Gulf Life Ins. Co. v. Arnold, 809 F.2d

1520, 1524 (11th Cir. 1987). Nonetheless, the Declaratory

Judgment Act, 28 U.S.C. § 2201, provides jurisdiction. See

Transamerica, 811 F.2d at 1253; Reynolds v. Stahr, 758 F. Supp.

1276, 1281 (W.D. Wis. 1991). As determined above, Doe could have

asserted a claim in federal court. 

Finally, Doe contends that the policy contains a "forum

selection clause" which requires any dispute to be litigated in the

State of Illinois. Prudential argues that the clause is a choice

of law provision. The district court did not address this issue.

Because we are remanding the case, the trial court may address the

clause on remand as a matter of jurisdiction, venue or choice of

law as may be appropriate. 

III. CONCLUSION

 We conclude that Doe is a "beneficiary" within the meaning of

29 U.S.C. § 1002(8), and that the district court incorrectly

dismissed the suit. We remand the case for further proceedings. 

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.