Citing ERISA Preemption, Sixth Circuit Dismisses State-Law Claims

The plaintiff, Simcha-Yitzchak Lerner, participated in the long-term disability plan of his employer, SDRC.  After EDS acquired SDRC, Lerner continued to participate in the EDS disability plan.  Continental Casualty Co. insured the EDS plan.  Lerner contended that EDS officials told him that its plan and the SDRC plan provided the same benefits. 

After having stroke-like episodes and chronic headaches, Lerner applied for disability benefits under the EDS plan. After failing to receive them, he filed suit against EDS and Continental. He asserted a claim against Continental for unpaid ERISA benefits and state-law claims against EDS for breach of contract for failing to pay the same benefits available under the SDRC plan; fraudulent misrepresentation by telling him that he would not lose coverage afforded by the SDRC plan; and innocent misrepresentation by telling him that his benefits would not be affected by the EDS acquisition.

 

The district court dismissed the three state-law claim against EDS, holding that those claims essentially sought “recovery of an ERISA plan benefit.”  The district court thus dismissed EDS as a defendant.  Lerner voluntarily dismissed his ERISA claim against Continental after settling his claim for disability benefits and appealed the dismissal of the state-law claims against EDS. 

 

The Sixth Circuit affirmed the dismissal of the state-law claims. The Court set forth its framework for evaluating ERISA preemption:

ERISA broadly preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan."  29 U.S.C. § 1144(a).  However, as we noted in Penny/Ohlmann/Nieman, Inc. (PONI) v. Miami Valley Pension Corp., 399 F.3d 692, 697 (6th Cir. 2005), "[T]he Supreme Court has narrowed the preemptive scope of ERISA, moving away from the broadest meaning of the provision."  Instead, the Court now looks "to the objectives of ERISA to guide its preemption decisions."  Id. at 698.  "Thus, ERISA preempts state laws that (1) 'mandate employee benefit structures or their administration:' (2) provide 'alternate enforcement mechanisms;' or (3) 'bind employers or plan administrators to particular choices or preclude uniform administrative practice, thereby functioning as a regulation of an ERISA plan itself.'"  Id.  ERISA does not, however, preempt "traditional state-based laws of general applicability that do not implicate the relations among the traditional ERISA plan entities, including the principals, the employer, the plan, the plan fiduciaries, and the beneficiaries."  Id. (quoting LeBlanc v. Cahill, 153 F.3d 134, 147 (4th Cir. 1998)).

 

Phrased differently, "[i]t is not the label placed on a state law claim that determines whether it is preempted, but whether in essence such a claim is for the recovery of an ERISA plan benefit." Id. (quoting Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272, 1276 (6th Cir. 1991)).  Because "virtually all state law claims relating to [*6] an employee benefit plan are preempted by ERISA," Cromwell, 944 F.2d at 1276 (emphasis added), we must determine whether Lerner's claims against EDS "relate to" the employee benefit plan.  See Ramsey v. Formica Corp., 398 F.3d 421, 424 (6th Cir. 2005).  "To do that, we consider the kind of relief that [the plaintiff] seek[s], and its relation to the . . . plan."  Id.

The Sixth Circuit rejected Lerner’s arguments that his state-law claims against EDS were based not on Continental’s denial of long-term disability benefits, but on EDS’s alleged failure to make sure that his SDRC benefits were not diminished in the corporate transition. The Court pointed out that Lerner had specifically pled in his state-law claims that his damages included “the loss of disability insurance benefits (monthly benefit payments, return to work benefits, and rehabilitation benefits.)” In the view of the Court, “Lerner has thus chosen to seek payment of the disability insurance benefits themselves, not merely damages in an amount equal to those benefits.”  Therefore, the Court said, “the state-law claims against EDS for breach of contract, fraudulent misrepresentation, and innocent misrepresentation ‘relate to’ an ERISA benefit plan and are preempted by that federal statute.” 

 

The case is Lerner v. Electronic Data Systems Corp., 2009 U.S. App. LEXIS 4922 (6th Cir. March 9, 2009).

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