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MURPHY v. RELIANCE STANDARD LIFE INSURANCE COMPANY

September 24, 2004.

DENNIS B. MURPHY, M.D., Plaintiff,
v.
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, P. 2).

  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.

  DISCUSSION

  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 benefits.

  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." ...


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