United States District Court, N.D. Illinois, Eastern Division
May 6, 2005.
TERRANCE BERGER and DONALD LAXTON, Plaintiffs,
AXA NETWORK, LLC, and THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Defendants.
The opinion of the court was delivered by: ELAINE E. BUCKLO, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs Terry Berger and Donald Laxton are insurance agents
who sold insurance for defendants AXA Network, LLC and The
Equitable Life Assurance Society of the United States
(collectively, "Equitable"). On January 7, 2003, Mr. Berger and
Mr. Laxton filed a three-count complaint against Equitable, on
behalf of themselves and a class of insurance agents similarly
situated. They allege that a policy implemented by Equitable
regarding classification of employees, for the purpose of
determining benefits eligibility, based on sales violated the
Employee Retirement Income Security Act ("ERISA"),
29 U.S.C. §§ 1001-1461 (Count I), the Federal Insurance Contributions Act
("FICA"), 26 U.S.C. §§ 3101-3128 (Count II), and constituted a
breach of contract (Count III). On July 3, 2003, I dismissed
Counts II and III of the complaint, and March 4, 2004, I granted plaintiffs' motion for class certification. The parties have
filed cross-motions for summary judgment.
Summary judgment is appropriate where the record and
affidavits, if any, show that there is no genuine issue of
material fact and that the moving party is entitled to judgment
as a matter of law. Lexington Ins. Co. v. Rugg & Knopp,
165 F.3d 1087, 1090 (7th Cir. 1999); Fed.R.Civ.P. 56(c). I
must construe all facts in the light most favorable to the
non-moving party and draw all reasonable and justifiable
inferences in favor of that party. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 255 (1986). As both parties' motions address
the same claims and evidence, I will first consider Equitable's
motion, construing the facts in the light most favorable to the
Mr. Berger and Mr. Laxton began selling insurance as agents for
Equitable in 1982 and 1984, respectively. Both sold insurance
under contracts, known as 14th Edition Contracts, which
specified that they were independent contractors, not employees
of Equitable. Despite their classification as independent
contractors, agents such as Mr. Berger and Mr. Laxton can be
eligible for benefits, such as health or life insurance, if they
are further classified as full-time life insurance salesmen
("FTLIS").*fn1 Prior to 1999, Equitable determined whether a
agent was classified as FTLIS based on a form entitled "Questionnaire for Determining Classification
for Purposes of the Old Age and Survivors Insurance Provisions of
the Federal Social Security Act" ("FICA questionnaire"). The FICA
questionnaire asked each agent, inter alia, whether he expected
"that the solicitation of life insurance and annuity contracts,
primarily for the Equitable, will be [his] entire business
activity?" Both Mr. Berger and Mr. Laxton answered that question
in the affirmative, and until 1999, Equitable relied on those
answers for the purpose of qualifying both men as FTLIS, and thus
eligible for benefits.
In the late 1990s, Equitable changed the method it used to
determine if an agent was eligible for participation in its
benefit plans. Beginning on January 1, 1999, Equitable would
consider an agent to be classified as an FTLIS if the agent met
one of three annual sales thresholds. Equitable claims that the
change was motivated by a number of factors, including concern
for compliance with the applicable tax and benefit laws,
comparison with the practices of competitors, and cost-savings.
Plaintiffs dispute that Equitable was motivated by anything other
than cost-savings. The agents, including Mr. Berger and Mr.
Laxton, were notified about this change in early 1998. Further,
agents not meeting the new standards at mid-year, including Mr.
Laxton, received a reminder of the new benefit rules. In 1999 and
2000, Mr. Berger and Mr. Laxton (respectively) failed to meet any
of the annual sales thresholds and were no longer classified as FTLIS by
Equitable, therefore losing their eligibility to participate in
Equitable's benefit plans.
Equitable argues that plaintiffs' claims are time-barred by the
applicable statute of limitations. ERISA does not itself include
a statute of limitations for § 510 claims, requiring the
application of the appropriate state's analogous statute of
limitations. Teumer v. Gen. Motors Corp., 34 F.3d 542, 546-47
(7th Cir. 1994). Doing so requires that I answer three
questions: (1) which state's law should apply; (2) what is the
most analogous cause of action in that state; and (3) when did
the plaintiffs' cause of action accrue.
Concerning the first question which state's law should apply
Equitable argues for New York law, while the plaintiffs argue
in favor of Illinois law. Choice of law issues in federal cases,
such as the one presented here, are generally determined by
reference to federal common law principles. See Aircrash
Disaster Near Roselawn, Ind. on Oct. 31, 1994, 926 F. Supp. 736,
739 (N.D. Ill. 1996) (noting that federal and Illinois common law
look to the Restatement for Conflict of Laws for choice of law
questions). Those principles look to see which state, among the
possible choices, has the "most significant relationship to the
occurrence and the parties." Id. The factors to be considered
when determining which state has the most significant relationship
include "(a) the place where the injury occurred; (b) the place
where the conduct causing the injury occurred; (c) the domicil,
residence, nationality, place of incorporation and place of
business of the parties; and (d) the place where the
relationship, if any, between the parties is centered." Id.
These factors weigh heavily in favor of New York. The injury
alleged here is the loss of benefits eligibility by certain
agents. That injury can be said to have occurred in many states,
as the plaintiff class of agents here reside in many states,
including New York, and less than five percent of them reside in
Illinois. The conduct that caused the alleged injury is
Equitable's change in how it classified an agent as FTLIS (or
not). That change, and the deliberations leading to it, all
occurred in New York. While the named plaintiffs do reside in
Illinois, members of the class, as noted above, reside in many
states, and only a small fraction are in Illinois. Equitable is
incorporated in New York, and has its principal place of business
there. Finally, if the relationship between Equitable and the
agents is centered anywhere, it is centered in New York. The
agents knew Equitable was incorporated and headquartered in New
York when they signed contracts with it, and no other "center"
for the relationship makes sense, given the wide dispersion of
the agents throughout many states. Further, the benefit plans in question provide that, where not
preempted by the federal law of ERISA, New York law will apply.
While plaintiffs argue, correctly, that ERISA is applicable to a
§ 510 claim, ERISA does not itself provide a statute of
limitations. Plaintiffs argue that therefore I must look to
federal law to determine the correct statute of limitations, but
I have already done so, as explained above. New York state law
shall supply the statute of limitations for this claim.
Given that New York's law is to supply the statute of
limitations, the next question is: what is the most analogous New
York cause of action. The Second Circuit has held that the most
analogous New York cause of action to § 510 claims is a
retaliatory discharge claim under New York's Workers'
Compensation statute, which carries a two-year statute of
limitations. Sandberg v. KPMG Peat Marwick, LLP, 111 F.3d 331,
336 (2nd Cir. 1997).
The final question is when plaintiffs' claims accrued, and
therefore when the limitations period began. Plaintiffs argue
that the denial of benefits to an agent constitutes the requisite
act for a § 510 claim, therefore starting the limitations clock
anew each year when agents who do not meet the new standards are
denied benefits. Plaintiffs incorrectly identify the act
underlying the § 510 claim. The alleged unlawful conduct here was
Equitable's change in how it classified agents as FTLIS.
Plaintiffs' claim accrued once Equitable had performed this
allegedly unlawful act and the plaintiffs discovered their injury allegedly resulting
from the act. Tolle v. Carroll Touch, Inc., 977 F.2d 1129, 1139
(7th Cir. 1992). That policy was communicated to the agents,
including Mr. Berger and Mr. Laxton, in 1998, and became
effective January 1, 1999. Plaintiffs did not file their claims
until January 7, 2003, more than four years after the policy
became effective. Under the two-year statute of limitations
applicable in this case, plaintiffs' claims were untimely.
Even if plaintiffs' claims were not time-barred, Equitable's
motion for summary judgment would still prevail on the merits.
Section 510 provides in relevant part that
It shall be unlawful for any person to discharge,
fine, suspend, expel, discipline, or discriminate
against a participant or beneficiary . . . for the
purpose of interfering with the attainment of any
right to which such participant may become entitled
[under the plan].
29 U.S.C. § 1140. The Seventh Circuit has held that § 510 is
designed specifically to protect the employment relationship from
being changed in a discriminatory or harmful way. Deeming v.
Amer. Standard, Inc., 905 F.2d 1124
, 1127 (7th Cir. 1990).
Here, the employment relationship between Equitable and the
plaintiffs has not been changed.*fn2 Before 1999, the
plaintiffs were independent contractors, and that status remained the same after
the 1999 change until Mr. Berger and Mr. Laxton ended their
business relationship with Equitable. What has changed is the
method by which Equitable determines whether an agent qualifies
as an FTLIS and therefore for participation in Equitable's
benefit plans. A FTLIS is defined as
An individual whose entire or principal business
activity is devoted to the solicitation of life
insurance or annuity contracts, or both, primarily
for one life insurance company.
26 C.F.R. § 31.3121(d)-1(d)(3)(ii). In the 1990s, Equitable
became concerned that some agents were stating that they fit this
definition, while actually selling products for a number of life
insurance companies or even conducting other business altogether.
Prior to 1999, Equitable simply took an agent's word that the
agent solicited life insurance contracts primarily for Equitable.
Plaintiffs appear to argue that once Equitable had classified
them as FTLIS, Equitable could not reclassify them regardless of
whether the agents actually met the definition of FTLIS. The
cases cited by plaintiffs as support for this proposition are
distinguishable. See Inter-Modal Rail Empls. Ass'n v. Atchison,
Topeka & Santa Fe Ry., 520 U.S. 510 (1997); Seaman v. Arvida
Realty Sales, 985 F.2d 543 (11th Cir. 1993), cert. denied,
510 U.S. 916 (1993). In those cases, the employer actually
changed the status of the employees in question, terminating them
when they refused to move from employee status to independent contractor status. The only change here is
that Equitable no longer accepts an agent's word for the purpose
of FTLIS classification. The 1999 change implemented an objective
standard for that determination, and does not affect the
employment relationship in the manner required for an action
under § 510.
Equitable's motion for summary judgment on Count I is granted;
plaintiffs' motion for summary judgment is denied.