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Little Wound School v. American United Life Insurance Co.

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

March 5, 2018

LITTLE WOUND SCHOOL, Plaintiff,
v.
AMERICAN UNITED LIFE INSURANCE COMPANY, Defendant.

          ORDER

          JEFFREY L. VIKEN CHIEF JUDGE.

         Plaintiff Little Wound 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 & 4). 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).

         LEGAL STANDARD

         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.

         FACTS

         Plaintiff is an educational facility charted by the Oglala Sioux Tribe, and its grades range from kindergarten to twelfth grade. (Docket 1-2 at p. 2). In 2010, plaintiff entered into an agreement with defendant on a 401(k) plan for plaintiff's employees. Id. at p. 3. The 2010 plan (also referred to as “the plan”) marked a transition from the benefits plaintiff provided its employees in the 1990s. Id.

         After relying on correspondence with defendant about the plan's contents, plaintiff formed mistaken beliefs on how the plan would operate, including “the exclusion of certain classifications of employees[.]” Id. Plaintiff asserts part the ‘90s plan included “employees designat[ing] a specific dollar amount to be contributed to the Plan[, ]” so the 2010 plan's “exclusion of certain classes of employees would have had the same effect as excluding specific types of compensation because contract employees receiving the other types of compensation were deferring stated dollar amounts.” Id. at pp. 3-4. “[O]perational failure” followed, as plaintiff alleges:

The operational failure is the failure to include certain compensation in the calculation of plan participant elective deferrals, resulting in missed elective deferrals, employer matching contributions and earnings. This operational failure resulted from a discrepancy between the Plan document's language and the intent of Little Wound and the communications to participants as to the definition of “compensation” and the scope of participant earnings that were subject to the right [to] defer earnings into the Plan.

Id. at p. 4.

         According to plaintiff, defendant made false representations. 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.

         Plaintiff enlisted the help of the Employee Plans Compliance Resolution System, which uses the Voluntary Compliance Program (“VCP”) in these situations. Id. Plaintiff made a “corrective contribution” to the plan totaling $137, 935.33 based on employees' missed deferral opportunities. Id. at p. 5. Plaintiff incurred a fee through the VCP and attorney fees by addressing the plan's problems. 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, VCP fee, attorney fees and punitive damages. (Docket 1-2 at pp. 10-11).

         DISCUSSION

         Defendant argues ERISA preempts plaintiff's claims. (Docket 4). “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 17 at p.1); see Johnston v. Paul Revere Life Ins. Co., 241 F.3d 623, 629 (8th Cir. 2001) (“As a preliminary matter, we must determine if the . . . policy at issue was a plan within the meaning of ERISA because the existence of a plan is a prerequisite to the jurisdiction of ERISA.”) (internal quotation marks omitted).

         ERISA includes a provision on preemption. 29 U.S.C. § 1144(a). The provision reads:

Except as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III 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.

Id. “The ERISA civil enforcement mechanism” found in § 502(a)[1] has “such extraordinary pre-emptive power that it converts an ordinary state common law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule.” Aetna Health, Inc. v. Davila, 542 U.S. 200, 209 (2004) (internal quotation marks omitted). Accordingly, the Davila Court stated “causes of action within the scope of the civil enforcement ...


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