Court Opinion

ID: 3017740
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:18:00.009711+00
Date Added: 2024-06-11T11:40:01.047587
License: Public Domain

___________

                           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
                           ___________

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

     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-
     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.

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-
     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?

     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-
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

      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-
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

                               -6-
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

                               -7-
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

                               -8-
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.

     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-