Opinion ID: 165859
Heading Depth: 2
Heading Rank: 2

Heading: ) KCL & Sunset

Text: 30 The plan argues the district court erred in (1) granting summary judgment in favor of KCL and Sunset on its state-law negligent supervision and vicarious liability claims and (2) refusing to consider its supplemental deposition offered in opposition to summary judgment. The plan asserted these state-law claims against KCL and Sunset based on their alleged agency relationship with Mr. Simper, and the defendants moved for summary judgment arguing the claims were preempted by ERISA. Upon consideration of the motion, the district court issued a two-page decision agreeing that ERISA preempted the state-law claims as the plan was attempting to hold [KCL and Sunset] liable for Mr. Simper's conduct under state law. 31 As we have previously noted, `any court forced to enter the ERISA preemption thicket sets out on a treacherous path,' Kidneigh v. UNUM Life Ins. Co. of Am., 345 F.3d 1182, 1184 (10th Cir.2003) (quoting Gonzales v. Prudential Ins. Co., 901 F.2d 446, 451-51 (5th Cir.1990)), and this is certainly true here. To begin with, ERISA preemption is a question of law we review de novo. Kidneigh, 345 F.3d at 1184. There are two aspects of ERISA preemption: (1) conflict preemption and (2) remedial or complete preemption. ERISA's express conflict preemption provision states, [ERISA] shall supersede any and all State laws insofar as they may now or hereafter relate to any [ERISA] plan. 29 U.S.C. § 1144(a) (emphasis added); Felix v. Lucent Techs, Inc., 387 F.3d 1146, 1153-54 (10th Cir.2004). In interpreting this language, the Supreme Court has consistently held that the Act's preemptive scope is broad. Cal. Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 324, 117 S.Ct. 832, 136 L.Ed.2d 791 (1997); Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990). However, recognizing that relates to cannot reasonably be applied to its logical conclusion, the Court has clarified that this language must be applied with the objectives of ERISA and the effect of the state law in mind. Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141, 147, 121 S.Ct. 1322, 149 L.Ed.2d 264 (2001). 32 Congress's primary purpose in enacting ERISA was to protect the interests of plan beneficiaries, Ingersoll-Rand Co., 498 U.S. at 137, 111 S.Ct. 478, and, in so doing, to `minimize the administrative and financial burden of complying with conflicting directives among States or between States and the Federal Government' by creating a uniform regulatory scheme for employee benefits plans. N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 656, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995) (quoting Ingersoll-Rand, 498 U.S. at 142, 111 S.Ct. 478). In light of these objectives, the Tenth Circuit has recognized four categories of state laws that are preempted by ERISA: 33 (1) laws regulating the type of benefits or terms of ERISA plans; 34 (2) laws creating reporting, disclosure, funding or vesting requirements for such plans; (3) laws providing rules for calculating the amount of benefits to be paid under such plans; and 35 (4) laws and common-law rules providing remedies for misconduct growing out of the administration of such plans. 36 Woodworker's Supply, Inc. v. Principal Mut. Life Ins. Co., 170 F.3d 985, 990 (10th Cir.1999). Conversely, if a state-law claim has only a tenuous, remote, or peripheral connection with the plan, as is true of most laws of general applicability, it is not preempted. Felix, 387 F.3d at 1154. Claims that solely impact a plan economically generally fall within this latter category. Indeed, [a]s long as a state law does not affect the structure, the administration, or the type of benefits provided by an ERISA plan, the mere fact that the law has some economic impact on the plan does not require that the law be invalidated. Airparts Co. Inc., v. Custom Benefit Servs. of Austin, 28 F.3d 1062, 1065 (10th Cir.1994) (internal quotations and citations omitted). 37 Identifying the relationship the state law seeks to address is also important in deciding whether conflict preemption applies. See Gen. Am. Life Ins. Co. v. Castonguay, 984 F.2d 1518, 1521 (9th Cir. 1993) (The key to distinguishing between what ERISA preempts and what it does not lies, we believe, in recognizing that the statute comprehensively regulates certain relationships ....). Claims that do not affect the relations among the principal ERISA entities, the employer, the plan, the plan fiduciaries and the beneficiaries are not preempted. Woodworker's Supply Inc., 170 F.3d at 990 (internal quotations and citations omitted). Necessarily, claims affect[ing] the relations between one or more of these plan entities and an outside party similarly escape preemption. Id. 38 The second aspect of ERISA preemption relates to the Act's remedial scheme and is termed complete preemption. In line with the purpose of creating uniform regulation, ERISA's civil enforcement provision, 29 U.S.C. § 1132(a), is a comprehensive remedial scheme. Aetna Health Inc. v. Davila, 542 U.S. 200, ___, 124 S.Ct. 2488, 2495, 159 L.Ed.2d 312 (2004). Indeed, the Supreme Court has stated: 39 The policy choices reflected in the inclusion of certain remedies and the exclusion of others under the federal scheme would be completely undermined if ERISA-plan participants and beneficiaries were free to obtain remedies under state law that Congress rejected in ERISA. The six carefully integrated civil enforcement provisions found in § [1132(a)] of the statute as finally enacted... provide strong evidence that Congress did not intend to authorize other remedies.... 40 Id. (internal quotations and citations omitted). As such, a claim that duplicates, supplements, or supplants the remedies provided by ERISA runs afoul of Congressional intent and is preempted. Id.; see also Kidneigh, 345 F.3d at 1185 (holding claim providing additional remedies conflicts with ERISA's remedial scheme and is preempted). However, a claim only falls within ERISA's civil enforcement scheme when it is based solely on legal duties created by ERISA or the plan terms, rather than some other independent source. Aetna Health Inc., 124 S.Ct. at 2496. This is termed complete preemption because not only is the state-law claim preempted, it becomes a federal claim and can be the basis for removal jurisdiction. Id. at 2495-96, 124 S.Ct. 2488; Felix, 387 F.3d at 1155. 41 With these principles in mind, we address each of the plan's claims asserted against KCL and Sunset independently.
42 In asserting a negligent supervision claim, a plaintiff is attempting to hold one in control of another's actions liable for the manner in which he or she exercised this control. Restatement (Second) of Agency § 213 (1958). This is direct, not derivative, liability. The controlling actor is being held responsible for his or her own supervisory behavior or the lack thereof, not the acts of the person being controlled. J.H. By and Through D.H. v. W. Valley City, 840 P.2d 115, 124 (Utah 1992) (Regardless of whether an employer may be held liable under the doctrine of respondeat superior, an employer may be directly liable for its acts or omissions in hiring or supervising its employees.). 43 As such, in asserting this claim against KCL and Sunset, the plan has implicated an independent legal duty recognized in agency and tort law that arises out of agency relationships like the one alleged between the defendants and Mr. Simper. Neither the plan nor ERISA are involved. Certainly, the plan's structure and administration are not being regulated, nor does the claim impact relations between plan entities as KCL and Sunset are both outside parties. 44 Further, unlike the cases where the existence of the plan was essential to finding liability, here any connection to the plan is fortuitous. See Ingersoll-Rand Co., 498 U.S. at 140, 111 S.Ct. 478 (state claim preempted because in order to prevail, [the] plaintiff must plead, and the court must find, that an ERISA plan exists); Gibson v. Prudential Ins. Co. of Am., 915 F.2d 414, 417 (9th Cir.1990) (state claim preempted because [t]here would be no relationship or cause of action between the [parties] without the Plan.). This claim could have been asserted just as easily if Mr. Simper, functioning as the defendants' agent, had given Dr. Coldesina personal investment advice and stolen his personal funds. This is true because the key to finding liability here is the agency relationship, not the plan. Thus, preempting this claim does not serve the purposes of ERISA. There is no risk of inconsistent obligations as it involves an area ERISA does not contemplate, and the interests of the plan beneficiaries are better served by allowing the claim to proceed, thereby increasing the plan's likelihood of recovery. 45 Likewise, this claim does not come within ERISA's remedial scope. The defendants have argued that, because Mr. Simper's fiduciary breach gave rise to the plan's loss and spurred the litigation, by simultaneously bringing state-law claims against them and ERISA claims against Mr. Simper's estate, the plan is trying to supplement the remedies provided by ERISA. We disagree. While ERISA does regulate and provide remedies for fiduciary breach, the negligent supervision claim is not based on Mr. Simper's behavior. Rather, it is a direct claim based on the defendants' duty to adequately supervise their agent, which aries independently from ERISA or the plan terms. 46 The Southern District of Ohio has recently addressed similar facts. See Nat'l Mgmt. Ass'n, Inc. v. Transamerica Fin. Res., Inc., 197 F.Supp.2d 1016 (S.D.Ohio 2002). There, Mr. Frank J. Skelly was a registered representative of the defendant, a security broker-dealer, and he owned his own business. He contracted with the plaintiff, a non-profit corporation, to place its retirement accounts with the defendant, and he accepted routine contributions from the plaintiff for deposit into those accounts. However, after Mr. Skelly's death it was discovered that he had embezzled a significant amount of the funds, depositing them into his personal or business accounts. 47 The plaintiff asserted numerous state-law claims against the defendant-broker, including negligent supervision, but the defendant moved to have the claims removed to federal court arguing ERISA applied. In considering the motion, the court found that because the defendant broker-dealer was not a plan fiduciary, even though its agent, Mr. Skelly, likely was, ERISA did not apply to—and therefore did not preempt—the state-law claims. Practically, the claims had nothing to do with the areas ERISA meant to regulate because the only wrongful conduct alleged was the defendant's supervision of Mr. Skelly. 197 F.Supp.2d at 1025. 48 Though the present case was presented in a different posture, the same reasoning applies. Without more involvement with the plan and its activities, KCL's and Sunset's actions are the subject of state agency and tort law, not ERISA. Indeed, other than being part of the factual backdrop of this case, the plan's existence is irrelevant here.
49 Vicarious liability is [t]he imposition of liability on one person for the actionable conduct of another, based solely on the relationship between the two persons. Black's Law Dictionary 1566 (6th ed.1990). Thus, by definition this is a derivative claim. For purposes of preemption, the fate of a derivative claim depends on the nature of the corresponding direct claim. See Kidneigh, 345 F.3d at 1189 (derivative state-law consortium claim based on direct ERISA claim preempted); Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1490-91 (7th Cir.1996) (vicarious liability claim preempted because direct claim dealing with denial of benefits based on ERISA). So, for example, when the direct claim is based on ERISA, as in Kidneigh and Jass, any finding of derivative liability is also dependent on the substance of ERISA, and under these circumstances, the state-law claim clearly relates to the plan triggering conflict preemption. However, derivative claims can also serve to provide additional remedies than those recognized by ERISA, thus falling within the scope of complete preemption. 50 Here, both ERISA preemption doctrines are implicated. The direct action supporting vicarious liability is an ERISA claim for breach of fiduciary duty asserted against Mr. Simper's estate. Obviously this claim regulates the relationship between plan entities, which means the derivative claim also depends on the regulation of a plan entity relationship, thus triggering ERISA conflict preemption. Regulation of fiduciary duties is also one of the primary subjects of ERISA's civil enforcement scheme, which triggers complete preemption. As previously noted, a claim that is completely preempted becomes a federal claim, but here that is not possible. The only remedies ERISA provides for breach of fiduciary duty are to hold the fiduciary personally liable, or to seek other appropriate equitable relief. 29 U.S.C. §§ 1109(a), 1132(a)(3). By claiming that KCL and Sunset are vicariously liable for Mr. Simper's actions, the plan is attempting to hold non-fiduciaries personally liable. Thus, the claim is preempted and it cannot be recast because there is no comparable federal claim. 51 The plan argues this is not an appropriate result because it is left without a remedy. First, given our analysis of the plan's negligent supervision claim, this is not entirely true. But more important, the availability of a remedy under ERISA is not relevant to the preemption analysis. Cannon v. Group Health Serv. of Okla., Inc., 77 F.3d 1270, 1274 (10th Cir.1996). As the Supreme Court recently reiterated, ERISA's remedial scheme evidences Congress's policy choices and intent to provide only the remedies it specified, Aetna Health Inc., 124 S.Ct. at 2495, and this court is not in a position to second-guess Congress simply because the facts of a particular case might be sympathetic.
52 The plan's final argument is that the district court erred in refusing to consider a supplemental deposition it offered in opposition to summary judgment. However, given our disposition of the merits of the district court's ruling, it is unnecessary to address this issue.