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Owayawa v. American United Life Insurance Co.

United States District Court, D. South Dakota, Western Division

March 5, 2018




         Plaintiff Isna Wica Owayawa, d/b/a Loneman School, filed an action against defendant American United Life Insurance Company in South Dakota state court. (Docket 1-2). Defendant removed the case to this court and filed a motion to dismiss the complaint. (Dockets 1 & 5). According to defendant, the Employee Retirement Income Security Act (“ERISA”) preempts plaintiff's claims and Rule 12(b)(6) of the Federal Rules of Civil Procedure requires dismissal of the complaint for failure to state a claim. (Docket 5); see Fed.R.Civ.P. 12(b)(6).

         Defendant also filed a motion to amend its notice of removal to correct clerical errors. (Docket 4). Plaintiff did not submit a filing in opposition. The court grants the motion to amend the notice of removal.


         Under Rule 12(b)(6), a plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Two “working principles” underlie Rule 12(b)(6) analysis. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). First, courts are not required to accept as true legal conclusions “couched as . . . factual allegation[s]” in the complaint. See id. “[A] complaint must allege ‘more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.' ” Torti v. Hoag, 868 F.3d 666, 671 (8th Cir. 2017) (quoting Twombly, 550 U.S. at 555). The court does, however, “take the plaintiff's factual allegations as true.” Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009). Second, the plausibility standard is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 678 (citation omitted). The complaint is analyzed “as a whole, not parsed piece by piece to determine whether each allegation, in isolation, is plausible.” Braden, 588 F.3d at 594.


         Plaintiff is an educational facility charted by the Oglala Sioux Tribe, and its grades range from kindergarten to eighth grade. (Docket 1-2 at p. 2). In 2009, plaintiff entered into an agreement with defendant on a 401(k) plan for plaintiff's employees (referred to as “the plan”). Id. at p. 3. The plan permitted employee contributions “through salary deferrals and . . . employer matching contributions.” Id. Plaintiff alleges the implementation of the plan created “operational errors, ” including:

A. For certain participants there was no election form, but elective contributions were nevertheless made from payroll;
B. Certain participants had election forms, but deductions were not made from payroll for the elective deferral contributions they indicated on the election forms;
C. Certain participants had an incorrect percentage of pay deducted from their wages for elective deferral contributions, meaning that the percentage of pay deducted was not the same percentage as indicated in the participants' election forms;
D. The 2% non-discriminatory employer contribution was not calculated correctly for some participants;
E. Participants who were eligible for the 2% employer contribution did not receive on[e] and other participants who were not eligible did receive one; F. Deposits of employee elective deferral contributions were not made in a timely manner; and G. Substitute teachers were not provided an opportunity to participate in the plan.


         Plaintiff asserts defendant made false representations about the plan. Id. at pp. 3-4. Specifically, that defendant “could efficiently sponsor and design” the plan; “that it was fully familiar with efficiently running these types of plans and could responsibly handle all functions necessary to establish a successful and fiscally responsible plan[;]” “that it was familiar with the scope of benefits that should be provided” to plaintiff's employees; and “that the Plan would be appropriately designed to ensure the best interests” of plaintiff's employees. Id.

         To fix the problems, plaintiff used “the Internal Revenue Service Voluntary Correction Program, Self-Correction Procedures (‘VCSC').” Id. at p. 4. Plaintiff made a “corrective contribution” to the plan totaling $23, 954.39. Id. Plaintiff incurred a fee related to VCSC and attorney fees by addressing the plan's issues. Id.

         The complaint advances three claims: fraud, negligent misrepresentation and negligence. Id. at pp. 5-9. They largely relate to the “false representations” set forth above. See supra at p. 3; (Docket 1-2 at pp. 5-9). Plaintiff seeks damages based on its corrective contribution, the fee related to VCSC, attorney fees and punitive damages. (Docket 1-2 at pp. 9-11).


         Defendant argues ERISA preempts plaintiff's claims. (Docket 5). “ERISA . . . is a comprehensive statute that sets certain uniform standards and requirements for employee benefit plans.” Minnesota Chapter of Associated Builders & Contractors, Inc. v. Minnesota Dep't of Pub. Safety, 267 F.3d 807, 810 (8th Cir. 2001) (internal quotation marks omitted). “Congress' primary concern was with the mismanagement of funds accumulated to finance employee benefits and the failure to pay employees benefits from accumulated funds. To that end, it established extensive reporting, disclosure, and fiduciary duty requirements to insure against the possibility that the employee's expectation of the benefit would be defeated through poor management by the plan administrator.” Massachusetts v. Morash, 490 U.S. 107, 115 (1989) (internal citation and footnote omitted). Plaintiff does not dispute the 401(k) plan at issue in this case is an ERISA plan. (Docket 18 at p.1); see Johnston v. Paul Revere Life Ins. Co., 241 F.3d ...

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