United States District Court, N.D. Illinois, Eastern Division
September 24, 2004.
DENNIS B. MURPHY, M.D., Plaintiff,
RELIANCE STANDARD LIFE INSURANCE COMPANY, Defendant.
The opinion of the court was delivered by: JOAN H. LEFKOW, District Judge
MEMORANDUM OPINION AND ORDER
This case is before the court on two related motions.
Plaintiff, Dennis B. Murphy, M.D. ("Murphy"), filed a motion to
remand this matter to the Circuit Court of Kane County, Illinois
("the state court"), contending that his complaint states claims
arising only under Illinois law, and, therefore, removal to this
court was improper. Defendant, Reliance Standard Life Insurance
Company ("Reliance"), filed a motion to dismiss Murphy's
complaint on the ground that the Employee Retirement Income
Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq.,
preempts Murphy's claims.
On February 25, 2004, Murphy filed a three-count complaint
against Reliance in the state court. According to the complaint,
Reliance breached a settlement agreement to which both parties
had agreed in order to resolve an earlier lawsuit filed by Murphy
against Reliance pursuant to ERISA. Reliance timely removed the
case to this court on the basis of federal question jurisdiction
and then moved to dismiss the complaint. Murphy subsequently
moved to remand the action. For the reasons stated herein, the
court denies Murphy's motion to remand [#4] and grants Reliance's
motion to dismiss [#2] without prejudice to Murphy's filing an
amended complaint. BACKGROUND
After suffering a massive heart attack, Murphy filed a claim
for long term disability benefits with Reliance. Reliance denied
Murphy's claim and his subsequent administrative appeal, finding
him ineligible because he was not totally disabled within the
meaning of the insurance plan. Murphy then filed suit against
Reliance in this court, Case Number 01 C 5149 ("the previous law
suit"), contending that Reliance's denial of his claim for long
term disability benefits violated ERISA. Neither party disputes
that Murphy's claims in the previous lawsuit were governed by
ERISA. (Pl. Exhibit B at ¶¶ 3, 22; Def. Memorandum in Opposition,
The parties ultimately resolved the previous lawsuit by
reaching an agreement that Reliance would pay Murphy a past total
disability payment of $69,149.45, place Murphy on long term
disability at a gross monthly benefit of $5,762.46,*fn1
starting immediately and with a waiver of disability insurance
premiums going forward, and continue Murphy's long term
disability payments unless Reliance made a determination pursuant
to the terms of the policy that Murphy was no longer disabled. As
part of the agreement, Murphy dismissed his complaint against
Reliance with the parties bearing their own costs and attorney's
fees. The parties, however, dispute whether this agreement is a
"settlement agreement." In his complaint in the present matter,
Murphy states that his settlement proposals of September 6, 2001
and November 6, 2001 to Reliance and Reliance's response of
November 7, 2001 created a binding contract that constituted a
settlement of his claims in the earlier lawsuit. (Pl. Complaint
at ¶ 24). Reliance disputes that a settlement agreement was ever
reached, contending that Reliance instead approved Murphy's claim
for benefits and Murphy dismissed the lawsuit. (Def. Memorandum in Opposition, P. 2).
In either event, from November 2001 until November 2003,
Reliance paid $5,762.46 in monthly long term disability benefits
to Murphy. In November of 2003, however, Reliance claimed a
"rehabilitation offset" of $2,564.31 from Murphy's $5,762.46 long
term disability payment. Reliance also informed Murphy that he
owed Reliance approximately $70,000 in previous rehabilitation
offsets because Murphy had returned to work on a part-time basis
in November of 2000. The parties continued to dispute the
propriety of rehabilitative offsets and their amount, with Murphy
contending that even if Reliance had an offset right under the
terms of the disability insurance policy, which Murphy argues it
did not by the terms of their agreement, Reliance improperly
offset $62,224.00 from Murphy's long term disability payments.
Murphy then sued in state court ("the pending law suit") for
breach of contract and bad faith conduct, seeking a declaratory
judgment that Reliance breached the agreement reached in the
previous lawsuit and a preliminary injunction enjoining Reliance
from continuing to breach the agreement.
The motions before the court raise two related issues: whether
removal of Murphy's complaint was proper, and whether ERISA
preempts Murphy's state law claims. Resolving one issue also
resolves the other. If ERISA completely preempts Murphy's state
law claims, then removal was proper. If Murphy's state law claims
are not preempted by ERISA, then removal was improper and this
court must remand the action to state court.
Under 28 U.S.C. § 1441(b), "any civil action brought in a State
court of which the district courts of the United States have
original jurisdiction, may be removed by the defendant or the
defendants, to the district court of the United States. . . ."
One type of civil action that is removable is a "federal question" case that is, one "arising under the
Constitution, laws, or treaties of the United States."
28 U.S.C. § 1331.
Federal question jurisdiction is normally determined by
reference to the plaintiff's wellpleaded complaint to see if it
raises issues of federal law. Rice v. Panchal, 65 F.3d 637,
639 (7th Cir. 1995). The "well-pleaded complaint" rule allows the
adjudication of cases in federal court only if the allegations in
the plaintiff's complaint establish issues of federal law.
Federal issues that arise solely as defenses to state law claims
do not confer federal jurisdiction. Caterpillar Inc. v.
Williams, 482 U.S. 386, 393, 107 S. Ct. 2425, 96 L. Ed. 2d 318
(1987). Instead, "[t]he issues raised in the plaintiff's
complaint, not those added in the defendant's response, control
the litigation." Jass v. Prudential Health Care Plan, Inc.,
88 F.3d 1482 at 1486 (7th Cir. 1996).
The Supreme Court has created an exception to the "well-pleaded
complaint" rule called the "complete preemption" or "implied
preemption" doctrine.*fn2 Speciale v. Seybold,
147 F.3d 612, 615 (7th Cir. 1998) (citing Avco Corp. v. Aero Lodge No.
735, 390 U.S. 557, 88 S. Ct. 1235, 20 L. Ed. 2d 126 (1968)).
Complete preemption allows a plaintiff's state law claim to be
recharacterized as a federal claim so that removal is proper.
Id. (citing Lister v. Stark, 890 F.2d 941, 943 (7th Cir.
1989)). The intent of Congress determines whether or not a cause
of action has been completely preempted. Id. (citing
Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 at 66,
107 S. Ct. 1542 at 1547-48, 95 L. Ed. 2d 55 (1987)). In Taylor, the
Supreme Court extended the "complete preemption" exception to ERISA cases. Jass, 88 F.3d at 1487.
Following Taylor, the Seventh Circuit held that cases within
the scope of Section 502(a) of ERISA are completely
preempted.*fn3 Rice, 65 F.3d at 639-40.
Although in his previous law suit Murphy acknowledged that he
was a participant in an employee benefits plan under ERISA
pursuant to 29 U.S.C. § 1002(7),*fn4 he contends that his
claims in the pending law suit are not completely preempted under
Section 502(a) of ERISA. In order to determine whether Murphy's
claims fall under Section 502(a), the court must consider three
factors: (1) whether the plaintiff is eligible to bring a claim
under Section 502(a), (2) whether the plaintiff's "claims fall
within the scope of an ERISA provision that the plaintiff can
enforce via § 502(a)," and (3) whether the plaintiff's "state law
claim cannot be resolved without an interpretation of the
contract governed by federal law." Jass, 88 F.3d at 1487
(citing Rice, 65 F.3d at 641, 644).
If Murphy's state law claims fall within the scope of Section
502(a), they are completely preempted regardless of how he has
characterized them. Id. at 1488. This is because "a plaintiff
cannot avoid complete preemption, and thereby `deny a defendant
access to federal court if the actual nature of the complaint is
federal,'" id. (quoting Doe v. Allied-Signal, Inc.,
985 F.2d 908, 911 (7th Cir. 1993), "by artfully pleading a
complaint so as to omit facts that indicate federal
jurisdiction." Id. (quoting Franchise Tax Bd. of Dir. of State of Cal. v.
Construction Laborers Vacation Trust for S. Cal., 463 U.S. 1 at
22, 103 S. Ct. 2841, 77 L. Ed. 2d 420 (1983)). Thus, the issue
this court must resolve is whether Murphy's state law claims are
best recharacterized as a Section 502(a) claim to recover
benefits due under the terms of the plan. Taylor,
481 U.S. at 64 (question is whether complaint that only raises state law
causes of action is recharacterized properly as an action arising
under federal law); Jass, 88 F.3d at 1489 (question is whether
plaintiff's claim against defendant is really based on ERISA);
Rice, 65 F.3d at 641 (question is whether plaintiff's claim
against defendant is within the scope of Section 502(a), even
though the complaint alleged only state common law contract and
tort claims). Applying the Jass factors to the instant matter,
it is clear that Murphy's claims against Reliance are more
properly characterized as a Section 502(a) claim for denial of
First, Murphy is a "participant" in the employee benefits plan
administered by Reliance and is entitled to file suit under
Section 502(a). While Murphy now contends that he is bringing
this action merely as a party to an individual contract and not
as a plan participant, his previous lawsuit against Reliance was
based on his status as a participant in an employee benefit plan.
(Pl. Exhibit B at ¶ 21) ("As an employee physician, Dr. Murphy
was a participant under ERISA pursuant to 29 U.S.C. § 1002(7) and
eligible to receive benefits from Reliance's employee benefits
plan as enjoyed by employee physicians similarly situated.").
Clearly, Murphy has remained a participant in that plan as he
receives long term disability benefits in accordance with that
plan. Moreover, the fact that Murphy is eligible to receive long
term disability benefits until Reliance makes a determination
that he is no longer totally disabled under the policy further
supports holding Murphy as a "participant" in the instant action.
(Pl. Complaint at ¶ 23). Second, while couching his claims in terms of seeking
enforcement of a settlement agreement, Murphy has sought a
declaration from this court that "Dr. Murphy is entitled to
$5,760.46 in monthly [long term disability] payments from
Reliance, that Dr. Murphy is entitled to $10,257.24 in past [long
term disability] payments from Reliance for the months of
November 2003 through February of 2004, and that Dr. Murphy does
not owe any offset or past amounts due to Reliance." (Pl.
Complaint at ¶ 41). Murphy's claims, in essence, seek to recover
the long term disability benefits that he believes are owed to
him, or, at very least, to clarify his rights to the amount of
long term disability benefits to which he is entitled. At its
most basic level, this suit challenges Reliance's administration
of Murphy's long term disability benefits under an ERISA plan.
Third, although the parties dispute the existence of a
settlement agreement and the amount of the gross monthly benefit
($5,760.46 (Pl. Complaint at ¶¶ 20, 23-24, 29-32, 36) or
$5,762.46 (Pl. Exhibits H, I, J, K, L)), both parties appear to
agree that the understanding reached in resolving the previous
lawsuit included payment of a "gross monthly benefit" to Murphy.
(Pl. Complaint at ¶¶ 20, 23). What Murphy nets from that gross
monthly benefit is not defined, however. Instead, even if this
court accepts as true Murphy's argument that the parties entered
into a binding contract to settle the previous lawsuit, it
remains necessary to look to the terms of the policy in order to
determine whether Murphy is receiving the appropriate amount of
long term disability benefits. It is the plan, and not the
agreement between the parties, that defines the manner in which
Murphy's monthly disability benefit is calculated. Consequently,
Murphy's claims against Reliance are more properly characterized
as a denial of benefits claim under Section 502(a), and removal
of this action from state court was proper. In light of the
court's finding that Murphy's claim is a denial of benefits claim
under ERISA, it is not necessary to address Murphy's and
Reliance's arguments concerning "conflict preemption." See Jass, 88 F.3d at 1491 ("because the claim
against PruCare is a § 502(a) denial of benefits claim, "conflict
preemption" under § 514 is irrelevant.").
CONCLUSION AND ORDER
For the reasons stated above, Murphy's motion to remand [#4]
this action to state court is DENIED. Reliance's motion to
dismiss [#2] is GRANTED WITHOUT PREJUDICE to plaintiff's filing
an amended complaint asserting his ERISA claim. Plaintiff is
given to file an amended complaint in conformity with this
opinion within 21 days. Reliance shall then have 21 days to
answer or otherwise plead. This case shall be called for status
on November 18, 2004 at 9:30 a.m.