___________

No. 96-1102

___________

R. Scott Bannister, as Trustee; *

Larry W. Borden, as Trustee; *

Missouri Pacific Employees' *

Health Association Plans; *

PayFlex Systems, U.S.A., Inc.; *

K. Russell Guethle, as Trustee, *

*

Plaintiffs, *

*

v. *

*

Darrell Sorenson; Darrell *

Sorenson & Associates, Inc.; *

Dan Sorenson, *

*

Defendants. *

*

-------------------- * Appeal from the United States

* District Court for the District

Darrell Sorenson, * of Nebraska.

*

Counter Claimant, *

*

Darrell Sorenson & Associates, *

Inc., *

*

Counter Claimant/ *

Appellant, *

*

v. *

*

Missouri Pacific Employees' *

Health Association Plans, *

*

Counter Defendant; *

*

PayFlex Systems U.S.A., Inc., *

*

Counter Defendant/ *

Appellee, *

*

Terry Haney; Dale Hogan, *

*

Counter Defendants. *

___________

 Submitted: September 13, 1996

 Filed: December 23, 1996
1

ERISA defines an "employee welfare benefit plan" as:

any plan, fund, or program which was heretofore or is

hereafter 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 . . . medical, surgical, or

hospital care or benefits, or benefits in the event of

sickness, accident, disability, death or unemployment, or

[other certain benefits or programs].

19 U.S.C. § 1002(1).

2

DSA points to a 1990 advisory letter from the Department of

Labor to MPEHA stating the Department's position that MPEHA was not

-2-

___________

Before BEAM, HEANEY, and JOHN R. GIBSON, Circuit Judges

___________

BEAM, Circuit Judge.

Darrell Sorenson & Associates, Inc. (DSA) appeals the district

court's conclusion, on summary judgment, that DSA's state common

law claim of breach of contract against PayFlex Systems U.S.A.,

Inc. (PayFlex) is preempted by the Employment Retirement Security

Act (ERISA), 29 U.S.C. §§ 1001-1461. We remand for a determination

of whether the federal courts have subject matter jurisdiction over

this action and, if so, for further proceedings consistent with

this opinion.

I. BACKGROUND

The dispute between DSA and PayFlex has its genesis in the

services these two companies provided to the Missouri Pacific

Employees' Health Association (MPEHA). All three organizations are

based in Omaha, Nebraska. MPEHA provides health care benefits to

active and retired employees of the Union Pacific Corporation.

PayFlex claims that MPEHA was an employee welfare benefit plan

under ERISA1

 at the time of the events giving rise to this action.

DSA counters that MPEHA was not an ERISA plan.2 
an ERISA plan. PayFlex argues that the Department reversed its

position in 1994, when it issued an advisory letter superseding the

prior letter and stating that MPEHA was an ERISA employee welfare

benefit plan.

-3-

Darrell Sorenson, a former employee of Union Pacific, was

hired by MPEHA in 1990 and became its president in 1992. In 1991,

while employed by MPEHA, Sorenson formed DSA and became its

president and sole shareholder. On July 1, 1991, Sorenson, acting

on behalf of DSA, entered into a contract with PayFlex. Under the

DSA-PayFlex contract, DSA agreed to perform certain benefits

administration tasks incident to services PayFlex provided as a

third-party administrator for employee health plans.

On August 6, 1991, PayFlex entered into a contract with MPEHA

to serve as "plan supervisor" of MPEHA's benefits for Union Pacific

employees. Under the PayFlex-MPEHA contract, PayFlex agreed to

administer claims and prepare payments to health care providers on

behalf of MPEHA. Pursuant to the prior DSA-PayFlex agreement,

PayFlex delegated to DSA certain precertification and catastrophic

case management services for MPEHA beneficiaries. 

This arrangement did not last long. During 1992, PayFlex and

MPEHA became dissatisfied with the quality of DSA's services.

Sorenson (in his capacity as president of MPEHA) documented his

view that PayFlex had failed to provide adequate services and (as

president of DSA) contended that DSA had provided adequate

services. In August, 1992, MPEHA fired Sorenson's son, Dan

Sorenson, who had been hired as an MPEHA customer relations clerk

the preceding April. Two months later, in October 1992, MPEHA

fired Darrell Sorenson. A series of letters between Sorenson and

officials of PayFlex and MPEHA detailed the souring relations among

the three companies. To complete the collapse of this arrangement,

PayFlex notified DSA on April 9, 1993, that it was rescinding its

contract with DSA. PayFlex informed DSA that it was taking this

action because of what it considered DSA's breach of the covenant

of good faith and fair dealing, defaults in service, customer

complaints, and DSA's fiduciary breaches.
3

MPEHA and PayFlex agreed to release all of their ERISA claims

against DSA and the two Sorensons. DSA and the Sorensons released

all their claims against MPEHA. DSA and Darrell Sorenson

acknowledge that they are no longer pursuing Sorenson's individual

claims nor DSA's tortious interference claims.

-4-

Sorenson threatened legal action and requested mediation.

Instead, MPEHA and PayFlex filed a complaint in federal district

court, naming Darrell Sorenson, Dan Sorenson, and DSA as

defendants. MPEHA and PayFlex asserted that the Sorensons and DSA

had: (1) breached their fiduciary duties under ERISA; and (2)

engaged in transactions prohibited under ERISA. MPEHA and PayFlex

sought the return of certain salary payments made by MPEHA to

Darrell Sorenson and Dan Sorenson and all payments made to DSA by

PayFlex under their contract.

DSA and Darrell Sorenson then filed a series of complaints in

state court. These complaints asserted that: (1) PayFlex had

breached its contract with DSA; and (2) that PayFlex, MPEHA, and

various executives of those organizations had conspired to

tortiously interfere with Darrell Sorenson's and DSA's contractual

rights. DSA asserted these same theories as counterclaims in the

federal action initiated by MPEHA and PayFlex, and the state

proceedings were stayed pending resolution of the federal case.

On July 17, 1995, the district court ruled on partial summary

judgment that ERISA preempted all of DSA's and Sorenson's

counterclaims. The court deferred entering judgment, pending

resolution of PayFlex's and MPEHA's ERISA claims. In December

1995, the parties reached a partial settlement. DSA reserved the

right to appeal the adverse judgment on its breach of contract

claim against PayFlex.3

The district court approved the settlement, and made final its

July summary judgment order. Despite the numerous claims and

parties originally involved in this case, on appeal the parties

present only one issue: does ERISA preempt DSA's state common law

breach of contract claim against Payflex? 
4

29 U.S.C. § 1144(a) provides that:

Except as provided in subsection (b) of this section, the

provisions of this subchapter and subchapter III of this

chapter shall supersede any and all State laws insofar as

they may now or hereafter relate to any employee benefit

plan described in section 1003(a) of this title and not

exempt under section 1003(b) of this title.

The exceptions to section 1144(a) are not relevant to this case.

-5-

II. DISCUSSION

ERISA comprehensively regulates certain employee welfare

benefits and pension plans. Pilot Life Ins. Co. v. Dedeaux, 481

U.S. 41, 44 (1987). In order to achieve national uniformity in

regulation of such plans, ERISA contains a preemption provision4

that applies to state common law-based claims as well as state

statutes. Kuhl v. Lincoln Nat'l Health Plan of Kansas City, Inc.,

999 F.2d 298, 301 (8th Cir. 1993). ERISA preempts any state law

that "relates to" an employee benefit plan. Shaw v. Delta Air

Lines, Inc., 463 U.S. 85, 96-97 (1983). The Supreme Court has

characterized the scope of ERISA preemption as "deliberately

expansive." Pilot Life, 481 U.S. at 46.

Not all state law claims that somehow affect a plan are

preempted. The Supreme Court has noted that "[s]ome state actions

may affect employee benefit plans in too tenuous, remote, or

peripheral a manner to warrant a finding that the law `relates to'

the plan." Shaw, 463 U.S. at 100, n.21. Some actions involving

ERISA plans are clearly of this sort: "run-of-the-mill state-law

claims such as unpaid rent, failure to pay creditors, or even torts

committed by an ERISA plan . . . although obviously affecting and

involving ERISA plans and their trustees, are not pre-empted by

ERISA." Mackey v. Lanier Collection Agency & Serv., 486 U.S. 825,

833 (1988).

Between the poles of those laws and claims that clearly

"relate to" an ERISA plan and those that are clearly too tenuously

related are a host of state laws that pose more difficult questions
-6-

of preemption. In Arkansas Blue Cross & Blue Shield v. St. Mary's

Hosp., Inc., we examined a number of tests that courts have used in

determining whether a state law "relates to" an ERISA plan. 947

F.2d 1341, 1344-45 (8th Cir. 1992). We determined that all of

these tests were in some degree instructive, and set forth six

factors for determining ERISA preemption that we distilled from the

cases: (1) whether the state law negates a plan provision; (2)

the effect on primary ERISA entities and impact on plan structure;

(3) the impact on plan administration; (4) the economic impact on

the plan; (5) whether preemption is consistent with other

provisions of ERISA; and (6) whether the state law at issue is an

exercise of traditional state power. Id. at 1345-50. While none

of these factors is itself determinative, they "serve to focus and

clarify the court's analysis." Id. at 1345.

DSA asserts that the district court erred in determining that

DSA's state law contract action "relates to" an ERISA plan and is

therefore preempted. DSA places great weight on the fact that the

district court did not cite or specifically analyze the six factors

discussed in Arkansas Blue Cross & Blue Shield. Rather, the court

determined that the "state law claims affect relations between

ERISA entities and, hence, are preempted by ERISA." Bannister v.

Sorenson, No. 8:CV93-357, slip op. at 6. (D. Neb. filed July 17,

1995). The court did not use any other factor in analyzing whether

DSA's claim "relates to" an ERISA plan. 

We have previously applied Arkansas Blue Cross & Blue Shield

only to issues involving the preemption of generally applicable

state statutes, not to common law claims. See, e.g., Boyle v.

Anderson, 68 F.3d 1093, 1101-1110 (8th Cir. 1995), cert. denied,

116 S. Ct. 1266 (1996) (applying Arkansas Blue Cross & Blue Shield

in determining that ERISA does not preempt a state health provider

tax); Minnesota Chapter of Associated Builders & Contractors, Inc.

v. Minnesota Dep't of Labor & Indus., 47 F.3d 975, 978 (8th Cir.

1995) (applying Arkansas Blue Cross & Blue Shield to find ERISA

does not preempt prevailing wage statute). Furthermore, we have

not invariably relied on Arkansas Blue Cross & Blue Shield
-7-

ourselves in deciding ERISA preemption cases. See, e.g., McCallum

v. Rosen's Diversified, Inc., 41 F.3d 1239 (8th Cir. 1994). While

helpful, the six factors are not themselves a magic formula for

determining preemption, and our main task is to determine "the

totality of the state [law's] impact on the plan." Arkansas Blue

Cross & Blue Shield, 947 F.2d at 1345. Nonetheless, we believe

that Arkansas Blue Cross & Blue Shield sets forth an analytical

structure for ERISA preemption claims that facilitates reasoned

decision-making and appellate review, and is applicable in both the

common law and statutory environment. 

In this context, then, we note that the remaining dispute does

not directly involve MPEHA but rather two of its subcontractors.

The undisputed facts advanced by PayFlex in support of summary

judgment allow us to consider how, if at all, determination of the

dispute will impact upon the terms of the plan, its administration

and its economic viability. Upon application of the Blue Cross &

Blue Shield factors we conclude that ERISA does not preempt DSA's

claim. Indeed, the issues appear to relate only peripherally to

MPEHA and its fundamental obligations to Union Pacific employees.

We reach this decision only provisionally, however. This is

because we are unable to determine whether the MPEHA plan is an

"ERISA plan" at all, and thus whether the federal courts have

subject matter jurisdiction over this action. A determination that

the involved plan is an "ERISA plan" is a requirement for federal

subject matter jurisdiction premised on ERISA, and if the evidence

does not show that the plan is an "ERISA plan," the court must

dismiss the case. Kulinski v. Medtronic Bio-Medicus, Inc., 21 F.3d

254, 256 (8th Cir. 1994). Furthermore, subject matter jurisdiction

is a nonwaiveable issue that we must consider on appeal, even if

the parties have not presented the issue. Id. See also Jader v.

Principal Mut. Life Ins. Co., 925 F.2d 1075, 1077 (8th Cir. 1991).

Whether an entity is an "ERISA plan" or administers benefits

that are subject to ERISA is a mixed question of fact and law.

Kulinski, 21 F.3d at 256. "To qualify as a 'plan, fund, or
-8-

program' under ERISA, a reasonable person must be able to

`ascertain the intended benefits, a class of beneficiaries, source

of financing, and procedures for receiving benefits.'" Northwest

Airlines, Inc. v. Federal Ins. Co., 32 F.3d 349, 354 (8th Cir.

1994) (quoting Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th

Cir. 1982) (en banc) and Harris v. Arkansas Book Co., 794 F.2d 358,

360 (8th Cir. 1986)). An "ERISA plan" may be involved in a dispute

even if the entity that supplies the benefits pursuant to a plan is

not itself a "plan" within ERISA. Donovan, 688 F.2d at 1372. 

 In the proceedings below, MPEHA and PayFlex asserted that

MPEHA is an ERISA plan, or alternatively that even if MPEHA itself

is not an ERISA plan that it manages assets and benefits subject to

ERISA. DSA, on the other hand, has asserted from the beginning of

this lawsuit that MPEHA is not an ERISA plan, or was not at the

time of the events giving rise to its claims. The district court

made no findings on this issue. In its Memorandum and Order

denying Dan Sorenson's motion to dismiss, the district court noted

that MPEHA and PayFlex "assert that the Association [MPEHA] is an

employee welfare benefit plan within the purview of ERISA, 29

U.S.C. § 1002(1)." Bannister v. Sorenson, No. 8:CV93-357, slip op.

at 1 (D. Neb. filed June 21, 1995). Similarly, in granting summary

judgment on DSA's and Darrell Sorenson's counterclaims, the court

stated that "[t]he plaintiffs allege" that MPEHA is an ERISA plan.

No. 8:CV93-357, slip op. at 2 (D. Neb. filed July 17, 1995).

However, the trial court never made any findings on this basic

jurisdictional issue before proceeding with its discussions of the

substantive merits of these motions. While we tend to believe that

MPEHA is an ERISA plan, we are unable to resolve from the record

the underlying factual disputes necessary to establish federal

jurisdiction. We conclude, therefore, that upon remand the

district court must first determine whether MPEHA is, or at the

time of the events in question was, a "plan, fund, or program"

within the meaning of ERISA or manages assets and benefits subject
5

On appeal, both parties have continued to dispute strenuously

whether Darrell Sorenson, DSA, or PayFlex are ERISA fiduciaries.

However, this somewhat muddles the issue. Whether an involved

party is a fiduciary may be probative, but it is not a strict

requirement in establishing ERISA preemption. Consolidated Beef

Indus., Inc. v. New York Life Ins. Co., 949 F.2d 960, 964 (8th Cir.

1991). In any event, whether any of these parties is an ERISA

fiduciary depends first on whether an ERISA plan is involved at

all.

-9-

to ERISA. See Jader, 925 F.2d at 1077 (remand is appropriate when

jurisdiction premised on ERISA is unclear from record).5

III. CONCLUSION

For the foregoing reasons, we vacate the judgment of the

district court and remand for consideration of subject matter

jurisdiction. If the district court finds subject matter

jurisdiction based upon ERISA, it should then conduct further

proceedings consistent with this opinion. If MPEHA is determined

to have been an ERISA entity at relevant times, we note that the

remaining claim would appear to fall within the trial court's

supplemental jurisdiction under 28 U.S.C. § 1367, even though MPEHA

has now been dismissed. Thus, under such circumstances, the court

is free to use its discretion to exercise jurisdiction or dismiss

the case as permitted by section 1367(c).

A true copy.

Attest:

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