United States District Court, D. Columbia
September 16, 2005.
MICHAEL STEWART AND ILENE BERGENFELD, Trustees of the Philip A. Stewart Irrevocable Trust, Plaintiffs,
NATIONAL EDUCATION ASSOCIATION, et. al., Defendants.
The opinion of the court was delivered by: COLLEEN KOTELLY, District Judge
The present dispute involves proceeds derived from the
privatization of Prudential Life Insurance Company
("Prudential"). Currently before the Court is a Motion to Dismiss
by Defendants National Education Association ("NEA") and National
Education Members Insurance Trust ("NEA Trust") for failure to
state a claim under Rule 12(b)(6) of the Federal Rules of Civil
Procedure. Defendants administer a group life insurance contract
("Group Contract") through its Members' NEA Insurance Plan
("Plan"). The Plan is underwritten by Prudential. Plaintiffs
Michael Stewart and Irene Bergenfeld are trustees of the Philip
A. Stewart Irrevocable Trust, which is the owner of a Group Life
Insurance Contract ("Group Contract") administered through the
Plan.*fn1 Plaintiffs contend that they were denied money
they were entitled to from the privatization of Prudential.
The Group Contract is an "employee welfare benefit plan" under
the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et.
seq. Plaintiffs filed an eleven count amended complaint seeking
damages and/or restitution against Defendants for the loss of
conversion privileges and demutualization consideration received
by the NEA Trust after Prudential converted from a participating
mutual insurance company to a non-participating stock company in
December 2001. Defendants maintain that Plaintiffs' rights under
the contract were not violated and that no special rights were
created when the conversion took place.
After reviewing Defendants' Motion ("Defs.' Mot."), Plaintiff's
Opposition ("Pls.' Opp'n"), Defendant's Reply ("Defs.'
Reply"),*fn2 and the applicable law, the Court finds that
Defendant's Motion to Dismiss must be granted.
I. Statutory Framework
The Employee Retirement Income Security Act ("ERISA"),
29 U.S.C. § 1001 et. seq., was enacted as a comprehensive
regulation of private employee benefit plans for the purpose of
protecting their participants and beneficiaries. See Aetna
Health Inc. v. Davila, 542 U.S. 200, 124 S. Ct. 2488 (2004);
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987). ERISA
regulates employee welfare benefit plans ("welfare plans") that
"through purchase of insurance or otherwise, provide medical,
surgical, or hospital care, or benefits in the event of sickness,
accident, disability, or death. Id. (quoting
29 U.S.C. § 1002(1) (internal quotations omitted)). ERISA applies to all
employee benefit plans established or maintained by an employer
engaged in, or affecting, commerce. 29 U.S.C. § 1003(a)(1). An
employee benefit plan is defined as "an employee welfare benefit
plan or an employee pension benefit plan or a plan which is
both. . . ." 29 U.S.C. § 1002(3).
There are regulations that cover both the fiduciary
responsibilities of welfare plans, 29 U.S.C. §§ 1101-1104, and
the disclosure of information to plan participants and
beneficiaries. 29 U.S.C. §§ 1021-1022. Under ERISA, participants
or beneficiaries of welfare plans can enforce their rights under
the terms of their plan in a civil suit. See
29 U.S.C. § 1132(a). Should a welfare plan terminate, ERISA dictates that the
assets of the plan shall be distributed "in accordance with the
terms of the plan. . . ." 29 U.S.C. § 1103(d). ERISA also has an
"anti-inurement" provision that prevents the assets of a plan
from inuring to "the benefit of any employer," and requires
benefits be held "for the exclusive purposes of providing
benefits to participants in the plan and their beneficiaries and
defraying reasonable expense of administering the plan."
29 U.S.C. § 1103(c)(1).
Congress intended for ERISA to be expansive. With minor
exceptions, state law relating to employee benefit plans is
pre-empted by ERISA. Pilot Life Ins. Co., 481 U.S. at 54. ERISA
section 514(a) explicitly states that "[e]xcept as provided in
subsection (b) of this section, the provisions of this subchapter
and subchapter III of this chapter shall supersede any and all
State laws insofar as they may now or hereafter relate to any
employee benefit plan. . . ." 29 U.S.C. § 1144(a). The Supreme
Court strictly construes the preemption provision in ERISA,
opining that the "federal scheme would be completely undermined
if ERISA-plan participants and beneficiaries were free to obtain
remedies under state law that Congress rejected in ERISA." Aetna
Health Inc., 124 S. Ct. at 2500 (quoting Pilot Life Ins. Co.,
481 U.S. at 54). Any state-law cause of action that "duplicates,
supplements, or supplants the ERISA civil enforcement remedy" is
preempted. Id. at 2495. II. Factual Background
Plaintiffs and other members of the NEA ("Member-Insureds")
enrolled in the Group Contract, originally as "participants,"
before Prudential changed its ownership structure in 2001 from a
mutual insurance company to a publicly owned, stock-based
insurance company. Am. Compl. ¶ 12. The life insurance benefit
under the Group Contract was one of several programs the NEA
established under its Members' NEA Insurance Plan ("Plan"). Id.
¶ 6. Defendant NEA Trust is a trust established by the NEA for
the purposes of holding the assets of the Plan. Id. ¶ 7.
A. The Group Contract
Member-Insureds made monetary contributions to the NEA Trust or
the National Education Association Members Benefit Corporation
("NEA MBC"), a wholly owned subsidiary of the NEA, for the
purposes of obtaining the benefits of the Group Contract. Id. ¶
9. The NEA Trust in turn paid the premiums to Prudential from the
fund. Id. ¶ 18. This arrangement was stipulated for in the
Plan. Id. Defendant NEA established the Plan in or around
September 1978. Id. ¶ 6. Designated Trustees have served the
Plan since it became effective. Id. ¶ 7.
The Plan provides group insurance to participants from its
membership of approximately 2.7 million school teachers
nationwide. Id. ¶ 6. The Plan's purpose is to
establish, maintain, and operate, on a voluntary and
self-sustaining basis, one or more programs to
provide benefits in the event of death, accident,
sickness, disability, or other occurrence affecting
participants and their family either on a self-funded
basis or through one or more insurance policies
acquired and maintained by the Trustees.
Id. Ex. D at 6.
The ERISA statute supplies a definition of an "employee benefit
plan" that includes an "employee welfare benefit plan," which is
an employee benefit plan "established or maintained by an employer or by an employee organization, or by both, to the
extent that such plan . . . was established or is maintained for
the purpose of providing for its participants or their
beneficiaries, through the purchase of insurance or otherwise . . .
benefits in the event of sickness, accident, disability, death
[or other occurrences]." 29 U.S.C. §§ 1002(1), 1002(3).
The Amended Complaint makes it clear that the NEA Members
Insurance Plan is covered by ERISA. The NEA is an "employee
organization" under 29 U.S.C. § 1002(4). See Am. Compl. ¶ 6
(stating that the "NEA is a national organization of school
teachers"). The Plan was established or maintained by that
organization. See id. ¶¶ 6, 42 (stating that "the NEA
established the Members Insurance Plan"). Finally, the Plan's
language, quoted infra, conforms to the definition of an
"employee welfare benefit plan" under ERISA.*fn3 Plaintiffs
are participants and/or beneficiaries under
29 U.S.C. § 1002(B)(7) & (8). As participants and beneficiaries in the Plan,
Member-Insureds were entitled to certain rights under ERISA. Am.
Compl. Ex. B. at 20.
Pursuant to the Plan, the NEA offered a life insurance benefit
to its members through the Group Contract, underwritten by
Prudential. Id. ¶ 8. Since the Group Contract is a Plan
document, it is also covered by ERISA. See id. Ex. B at 20
("The terms of the Plan are currently contained in a Trust agreement and operating document governing
the Plan, in the insurance policies issued to the Trust . . .").
The Group Contract consists of (1) the group contract itself,
along with any attachments and endorsements, Am. Comp. Ex. A; (2)
a Group Insurance Certificate, Am. Compl. Ex. B; and (3) the
individual applications of Member-Insureds, Compl. Ex. C. The
group contract contains a provision integrating these documents
as the applicable contract:
The entire group contract consists of: (1) the Group
Insurance Certificate(s) listed in the Schedule of
Plans, a copy of which is attached to the Group
Contract; (2) all modifications and endorsements to
such Group Insurance Certificates which are attached
to and made a part of the Group Contract by amendment
to the Group Contract; (3) the forms shown in the
Table of Contents as of the Contract Date; (4) the
Contract Holder's application, a copy of which is
attached to the Group Contract; (5) any endorsements
or amendments to the Group Contract; and (6) the
individual applications, if any, of the persons
Id. ¶ 14 (citing Ex. A, `General Rules' at (7-1)C).
The NEA Trust's published "Summary Plan Description," Am.
Compl. Ex. B, makes it clear that the Group Contract was
administered through the Plan:
Plan Name. The plan is generally known as the NEA
Member Insurance Plan.
Trust Name. The Trust is generally known as the NEA
Member Insurance Trust.
Program Name. The Program is generally known as the
NEA Life Insurance Plan.
. . .
Termination and Amendment of Plan or Trust. The NEA
and the Trustees reserve the right to modify or
terminate the Plan, any Program, or the Trust at any
Am. Compl. Ex. B. at 20 (emphasis in original). The Summary Plan
Description also alerts members of their rights regarding
programs within the Plan under ERISA. Id. at 22. B. Prudential Conversion
Members of a mutual insurance company own "participating life
insurance contracts" and have a beneficial right to participate
in the insurer's surplus. Id. ¶ 21. Should the expected value
of the premium payments charged by the mutual insurer exceed
costs, the mutual company's board may return a portion of the
members' premiums in the form of dividends. Id. ¶ 23. This
ownership structure allows policy owners to obtain insurance
protection at cost. Id. In contrast, the price of a
"non-participating policy" is set, and policy holders are not
entitled to any surplus created by their premiums. Id. ¶ 22.
Plaintiffs allege that the Member-Insureds were "members" of
the insurance company with a proportional beneficial interest in
Prudential's surplus as a result of the Group Contract, which was
a "participating" policy. Id. ¶ 28. In support of their
position, Plaintiffs point to the fact that Prudential directly
determined the premiums for each Member-Insured and that the NEA
did not pay any portion of the premiums. Id. ¶ 25. Furthermore,
Plaintiffs claim that they are the beneficiaries of the Group
Contract and that they specifically allocated their surplus
dividends toward reducing the cost of their insurance. Id. ¶
26. Plaintiffs claim, however, that in contrast to the provision
for dividends there is no affirmative agreement in the Group
Contract that would allow the NEA Trust to take or use the
Member-Insureds membership interest for anyone other than the
Member-Insureds. Id. at ¶ 27.
In December 2001, the Prudential ownership structure changed
and the company was converted into a stock-based life insurance
company. Id. ¶ 8. The process of conversion from a mutual
insurance company to a stock company is referred to as
demutualization. By reason of the conversion, the Group Contract
was terminated and replaced by a "non-participating" policy underwritten by Prudential Financial Inc. ("PFI"). Id. ¶ 32,
35. The old Group Contract provided a "Conversion Privilege":
Prudential will give an individual certificate to
each insured Member. It will describe the Member's
coverage under the Group Contract. It will include
(1) to whom Prudential pays benefits, (2) any
protection and rights when the insurance ends, and
(3) claim rights and requirements.
Id. ¶ 35 (citing Ex. A, p. 5) (emphasis omitted). The
Conversion Privilege also provided the Member-Insureds the right
to convert their Group Contract rights to individual contracts
for insurance. Id. ¶ 36.
For the conversion to take place, the company had to terminate
its existing "participating" policies. Id. ¶ 29. Prudential's
parent company, Prudential Financial Inc. ("PFI"), underwent its
initial public offering on December 13, 2001, and on that date
the "participating" contracts were dissolved. Id. ¶ 31.
Prudential compensated members for the loss of their membership
interests with cash, insurance policy credits or stock in the
newly created PFI. The resulting compensation is known as
"demutualization interest" or consideration. The consideration
was paid to the NEA Trust, which Plaintiffs assert was required
by the New Jersey Conversion Law and given on behalf of the
Member-Insureds as the beneficiaries of the Group Contract. Id.
On September 1, 2002, after receiving the demutualization
consideration, the NEA Trust and the Trustees amended the Plan to
redefine "Trust Fund" in section 1.9 of the Plan and "Surplus
Fund" in section 12.2 of the Plan. Id. ¶ 44. Plaintiffs claim
the new definitions, which include "any equity shares or proceeds
from insurance company demutualization," are an attempt to
retroactively redefine the terms in the Plan to give NEA and the
NEA Trust control and ownership of the consideration. Id.
(quoting Ex. D-1, p. 15). Plaintiffs claim that Article Thirteen (13) of the Plan prohibits retroactive amendments that
result in the deprivation of participant and beneficiary benefits
and that it requires communication between the Plan Administrator
and those receiving benefits. Id.
C. Procedural History
On October 15, 2002, Plaintiffs filed a Complaint before this
Court alleging ownership of the demutualization consideration. On
April 4, 2003, Plaintiffs filed an Amended Complaint consisting
of eleven counts against the NEA and the NEA Trust. The Amended
Complaint also requested that the Court certify the Plaintiffs as
a class pursuant to Fed.R.Civ.P. 23(a), (b)(1), and (b)(3) on
behalf of all Members of the NEA who were beneficiaries under the
Group Contract through December 13, 2001.*fn4
The first three counts arise under different ERISA provisions,
and are alleged against both Defendants. Count I is a claim for
benefits under 29 U.S.C. § 1132(a)(1)(B) and (3). Count II
alleges breach of fiduciary duty under 29 U.S.C. §§ 1104 and
1109. Count III alleges partial termination and improper
allocation of residual assets under 29 U.S.C. § 1103(d).
The remaining claims, Counts IV through XI, do not arise under
ERISA's provisions. Counts IV and V are federal common law claims
alleging failure of express trust/resulting trust and unjust
enrichment-constructive trust, respectively. The remaining
claims, Counts VI through XI, arise under District of Columbia
law. Counts VI and VII allege breach of contract solely against
the NEA Trust. Count VI alleges failure to provide conversion
privileges while Count VII alleges deprivation of demutualization
consideration. Count VIII alleges breach of fiduciary duty
against both Defendants, NEA and NEA Trust. Count IX alleges
tortious interference with contractual relations against the NEA. Counts X and XI address
trust failure and unjust enrichment, and mirror the federal
common law claims raised in Counts IV and V.
On May 28, 2003, Defendants, NEA and NEA Trust, filed a motion
to dismiss all counts for failure to state a claim under Federal
Rule of Civil Procedure 12(b)(6).
III. Standard of Review
Defendants NEA and NEA Trust move to dismiss the Amended
Complaint for failure to state a claim under Rule 12(b)(6). "In
evaluating a Rule 12(b)(6) motion to dismiss for failure to state
a claim, the court must construe the complaint in a light most
favorable to the plaintiff and must accept as true all reasonable
factual inferences drawn from well-pleaded factual allegations."
In re United Mine Workers, 854 F. Supp. at 915; see also
Schuler, 617 F.2d at 608 ("The complaint must be `liberally
construed in favor of the plaintiff,' who must be granted the
benefit of all inferences that can be derived from the facts
alleged."). While the court must construe the Complaint in the
Plaintiff's favor, it "need not accept inferences drawn by the
plaintiff? if such inferences are not supported by the facts set
out in the complaint." Kowal v. MCI Communications Corp.,
16 F.3d 1271, 1276 (D.C. Cir. 1994). Moreover, the court is not
bound to accept the legal conclusions of the non-moving party.
See Taylor v. FDIC, 132 F.3d 753, 762 (D.C. Cir. 1997). The
court is limited to considering facts alleged in the complaint,
any documents attached to or incorporated in the complaint,
matters of which the court may take judicial notice, and matters
of public record. See EEOC v. St. Francis Xavier Sch.,
117 F.3d 621, 624 (D.C. Cir. 1997); Marshall County Health Care Auth. v.
Shalala, 988 F.2d 1221, 1226 n. 6 (D.C. Cir. 1993). Factual
allegations in briefs of memoranda of law may not be considered
when deciding a Rule 12(b)(6) motion, particularly when the facts
they contain contradict those alleged in the complaint. Henthorn v. Dep't of Navy, 29 F.3d 682, 688
(D.C. Cir. 1994); cf. Behrens v. Pelletier, 516 U.S. 299, 309,
116 S.Ct. 834, 133 L.Ed.2d 773 (1996) (when a motion to dismiss
is based on the complaint, the facts alleged in the complaint
A. Count I Does Not State a Claim for Denial of Benefits under
ERISA and Must Be Dismissed
Plaintiffs' Count I is styled as a claim for benefits under
29 U.S.C. § 1132(a)(1)(B) and (a)(3). Plaintiffs allege that they
had "a contractual right to `Conversion Privileges' which was
denied by the NEA, the NEA Trust and/or Prudential." Am. Compl. ¶
68. In addition, Plaintiffs allege that "the consideration
received by the NEA Trust for the extinguishment of their
beneficial membership interests constitutes benefits owed to
Member Insureds." Id.
ERISA's civil action enforcement provision allows a cause of
action for benefits due under terms of an employee benefit plan.
ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B) and (a)(3). The
first provision allows a participant or beneficiary to file a
civil action in order to "recover benefits due to him under the
terms of his plan, to enforce his rights under the terms of the
plan, or to clarify his rights to future benefits under the terms
of the plan." 29 U.S.C. § 1132(a)(1)(B). The second provision
allows a participant, beneficiary, or fiduciary "(A) to enjoin
any act or practice which violates any provision of this
subchapter or the terms of the plan, or (B) to obtain other
appropriate equitable relief (i) to redress such violations or
(ii) to enforce any provisions of this subchapter or the terms of
the plan." 29 U.S.C. § 1132(a)(1)(3).
A plaintiff who brings a claim for benefits under ERISA must
identify a specific plan term that confers the benefit in
question. See, e.g., Clair v. Harris Trust & Sav. Bank,
190 F.3d 495, 499 (7th Cir. 1999) (Chief Judge Posner holding that "only
benefits specified in the plan can be recovered in a suit under
section 502(a)(1)(B)," and that plaintiffs' claim for unspecified
interest on late benefit payments "is inconsistent with the
principle that benefits payable under an ERISA plan are limited
to the benefits specified in the plan.") (citing Massachusetts
Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 144-47 (1985))
(citations omitted). The Court may therefore dismiss an action if
the plaintiff is not entitled to a benefit they seek under the
ERISA-regulated plan. The dispute therefore centers on the terms
of the Plan. It should be noted the Supreme Court has held that
"[a]ny dispute over the precise terms of the plan is resolved by
a court under a de novo review standard, unless the terms of
the plan `giv[e] the administrator or fiduciary discretionary
authority to determine eligibility for benefits or to construe
the terms of the plan.'" Aetna Health Inc., 124 S. Ct. at 2496
(quoting Firestone Tire & Rubber Co. v. Brunch, 489 U.S. 101,
Traditionally, benefit plans do not cover demutualization
considerations. ERISA specifies some benefits that automatically
fall under ERISA regulations, such as medical, disability, and
death benefits, but demutualization consideration is not included
in this category. See 29 U.S.C. § 1002(1). While the statute
itself does not address demutualization consideration as a
benefit, the Department of Labor ("DOL") has issued an Advisory
Opinion on the matter.*fn5
The DOL advisory opinion states: The proceeds of the demutualization will belong to
the plan if they would be deemed to be owned by the
plan under ordinary notions of property rights. . . .
In the case of an employee pension benefit plan, or
where any type of plan or trust is the policyholder,
or where the policy is paid for out of trust assets,
it is the view of the department that all of the
proceeds received by the policyholder in connection
with a demutualization would constitute plan assets.
Chicago Truck Drivers, Helpers, and Warehouse Workers Union
Health and Welfare Fund v. Local 710, Int'l Bhd. of Teamsters,
No. 02-3115, 2005 U.S. Dist. WL 525427 at *3 (N.D. Ill. Mar. 4,
2005) (quoting Employee Benefits Sec. Admin. ("EBSA") Advisory
Op. 2001-02A n. 1 (2001)). Although the DOL advisory opinion does
not address whether member-insureds have any entitlement to
demutualization proceeds, it does make it clear that fiduciaries
of employee welfare benefit plans are required to treat the
portion of the demutualization proceeds attributable to
participant contributions as plan assets, rather than as assets
belonging to the employers. Id. at *7-8 ("[T]he appropriate
plan fiduciary must treat as plan assets the portion of the
demutualization proceeds attributable to participant
contributions.") (quoting EBSA Advisory Op. 2001-02A at n. 2).
The DOL leaves the final determination as to whether an item
belonged to a plan, an employer or employees to the consideration
of any "contract or other legal instrument involving the plan
documents . . . [and] the action and representations of the
parties involved." Id. (quoting U.S. Dep't of Labor's Pension &
Welfare Benefits Admin. Office of Regulations & Interpretations
Advisory Op. 92-02A (2002)).
Based on the advisory language by the DOL, the contractual
language of the Plan controls whether or not demutualization
considerations are "benefits" under ERISA for purposes of an
ERISA section 502(a) civil enforcement action. See
29 U.S.C. § 1132(a)(1)(B). An action under section 502(a) requires that
plaintiff present a prima facie case that the benefit plan is
covered under ERISA and that the claimed benefit is included in that
plan. If the Amended Complaint contains no ERISA covered benefit
to which Plaintiffs are entitled, the action must be dismissed
for failure to state a claim under R. 12(b)(6).
Plaintiffs argue that the Plan defines "Benefit Program" to
include benefits provided through the purchase of group
insurance, thereby encompassing the Group Contract. Am. Compl.
Ex. D § 1.14. Section 1.13 of the Plan defines "Benefit" to
include ". . . any amount . . . payable to a participant or
beneficiary in the event of death . . . or other occurrence
affecting the participant . . . in accordance with the terms of
any insurance policy . . . and this Plan." Id. Ex. D § 1.13
(emphasis added). Plaintiffs contend that demutualization was an
`occurrence' affecting Plaintiffs in accordance with the terms of
their insurance policy, and therefore it should be included as a
benefit. Plaintiffs' argument does not conform to the intent of
the Plan, however. Section 1.13 places "other occurrence" after
"death, accident, sickness, disability," which physically affect
an insured and provide grounds for which insurance and benefits
would be necessary, as opposed to affecting him in an exclusively
pecuniary manner. Am. Compl. Ex. D § 1.13. It is therefore
dubious that "Benefit Program" in the Plan was meant to encompass
the Group Contract.
In their amended complaint, Plaintiffs point out: "Under the
Group Contract, Member-Insureds specifically assigned their right
to receive divisible surplus to the NEA Trust to use the
dividends to reduce the cost of their insurance. . . ." Am.
Compl. ¶ 26. Then Plaintiffs note that "[u]nlike with dividends,
the Group Contract provides no affirmative agreement that would
allow, or authorize the NEA Trust to take control of, or apply
Member-Insureds' `equity' or `membership interest' to other
persons. . . ." Am. Compl. ¶ 27. This lack of an `affirmative agreement' that would entitle the Plan to the demutualization
consideration also highlights the fact that there is not a
specific benefit that Plaintiffs are being denied. Plaintiffs'
claimed benefit does not fall within the intent of the contract,
and therefore under the standard of ERISA Plaintiffs have failed
to state a claim.
B. Count II Does Not State a Claim for Breach of Fiduciary
Duty and Violation of ERISA
ERISA includes requirements for fiduciaries in charge of
administering benefits under the statute. 29 U.S.C. § 1104. A
fiduciary is required to discharge his duties "solely in the
interest of the participants and beneficiaries . . . (A) for the
exclusive purpose of: (i) providing benefits to participants and
their beneficiaries; and (ii) defraying reasonable expenses of
administering the plan." 29 U.S.C. § 1104(a)(1) and (a)(1)(A).
This must be done "(B) with the care, skill, prudence, and
diligence under the circumstances . . . (D) in accordance with
the documents and instruments governing the plan."
29 U.S.C. § 1104(a)(1)(B) and (D). Violations of this mandate may be enforced
under 29 U.S.C. § 1109. Under section 1109, a fiduciary is
personally responsible for compensating the plan he or she
administered for any losses resulting from the breach of his or
her duties. 29 U.S.C. § 1109(a). Furthermore, the D.C. Circuit
has found that "[t]he duty to disclose material information is
the core of a fiduciary's responsibility, animating the common
law of trusts long before the enactment of ERISA." Eddy v.
Colonial Life Ins. Co. of America, 919 F.2d 747, 750 (D.C. Cir.
Plaintiffs assert that "[t]he NEA and the NEA Trust have a
fiduciary duty to act in the interest of the Member-Insureds
which requires the NEA Trust to act solely in the interest of the
Member-Insureds in connection with the Group Contract on behalf
of its beneficiaries, the Member-Insureds." Am. Compl. ¶ 73. Plaintiffs claim that
Defendants violated their fiduciary duty by failing to notify
Member-Insureds of the conversion and by failing to allocate or
provide the demutualization consideration for the benefit of the
Member-Insureds. Am. Compl. ¶ 75. Plaintiffs further object to
what they consider retroactive amendment of the Plan to take
custody, control and ownership of the consideration away from the
Plaintiffs argue that they were denied the ability to exercise
their conversion privilege to obtain some form of an individual
contract. Plaintiffs are not seeking individual contracts,
however, but a share in the demutualization proceeds. The DOL
advisory opinion states that if demutualization proceeds are
distributed to an ERISA plan by virtue of its status as a group
policyholder, or if the group policy giving rise to
demutualization proceeds is funded by participant contributions,
then the proceeds may not be held or treated as property
belonging to the employer or plan sponsor, but must be held and
treated as assets of the plan. See supra IV.A. Plaintiff's
meanwhile assert that "[t]he DOL requires that any
`demutualization compensation' attributable to a group policy
must be held for the benefit of the policy's beneficiaries if the
premiums for the group policy were contributed by them." Pls.'
Opp'n at 23-24 (citing Letter from Acting Assistant Secretary of
Labor Alan Lebowitz, Pension Welfare Benefits Administration,
U.S. Dept. of Labor, to Theodore Groome, Groom Law Group ("DOL
Letter Opinion") at App. Ex. B).*fn6
Plaintiffs' position, however, lacks authority. Plaintiffs cite
Opinion No. 2001-04A, 2001 WL 429859 (ERISA), which includes the
DOL Letter Opinion, to support their position. Plaintiffs quote
from the DOL Letter Opinion: "It is the view of the Department
that, in the case of an employee welfare benefit plan with respect to which
participants pay a portion of the premiums, the appropriate plan
fiduciary must treat as plan assets the portion of the
demutualization proceeds attributable to participant
contributions." Pls.' Opp'n at 24 (emphasis in Plaintiffs'
brief). However, Plaintiffs' reliance on this advisory opinion is
misplaced, because the advisory opinion merely supports the
position, established in the last section, that demutualization
proceeds should be considered plan assets rather than
employer assets. The advisory opinion does not suggest that the
demutualization proceeds should be considered assets belonging to
In Hughes Aircraft Company v. Jacobson, 525 U.S. 432 (1999),
the Supreme Court held that, in an ERISA governed plan, surplus
returns generated by employee contributions could be applied to
other employees in the plan who did not make such contributions.
This holding can be extended to say that, consistent with ERISA's
anti-inurement provision, demutualization consideration can be
used to fund benefits to participants in different programs
within the NEA Plan without violating ERISA. See Hughes,
525 U.S. at 442. Plaintiffs have failed to establish a term in their
contract with Defendants that prevents them from doing so.
Plaintiffs do not contend that Defendants violated their
fiduciary duty to all members of the Plan, but merely to
Member-Insureds. In the absence of a contractual provision that
requires otherwise, Defendants' fiduciary duty under ERISA was
not violated by adding the demutualization consideration to the
Plan, and not specifically to the Member-Insureds. Accordingly,
because Plaintiffs have not established such a contractual
relationship, and because they do not contend that Defendants
have violated their fiduciary duty to the Plan, Plaintiffs' claim
for breach of fiduciary duty fails. C. Count III Does Not State a Claim for Partial
Termination-Allocation of Residual Assets Under
29 U.S.C. § 1103(d)
Plaintiffs claim that Defendants violated 403(d) of ERISA,
29 U.S.C. § 1103(d), which governs the termination of welfare
benefit plans. Plaintiffs allege that the Plan was terminated and
that Defendants were required to give the demutualization
consideration to the Member-Insureds under the statute. Am.
Compl. ¶¶ 76-79. Section 403(d) of ERISA states: "The assets of a
welfare plan which terminates shall be distributed in accordance
with terms of the plan." 29 U.S.C. § 1103(d)(2), see also
29 U.S.C. § 1103(d)(1) (noting that some pension plans have
different allocation requirements). Under ERISA a plan is any
"plan, fund, or program . . . established or maintained by an
employer or by an employee organization . . . for the purpose of
providing for its participants or their beneficiaries. . . ."
29 U.S.C. § 1002(1). The Plan stipulates that termination shall not
deprive participants or beneficiaries of their rights to receive
benefits that arose prior to termination, that surplus funds will
be disbursed in accordance with the plan, and that the Plan
Administrator will give a summary of the effect of the
termination to participants. Am. Compl. Ex. D § 13.2.
Plaintiffs maintain that "[u]nder the terms of the NEA Benefits
Document, a full termination took place." Pls.' Opp'n at 34.
Plaintiffs claim that "[t]he language in this document requires
that the termination be determined from the participants'
perspective in stating `The benefits provided under this plan
shall terminate with respect to any participant or his family'
when the insurance policy is discontinued." Id. (emphasis in
original). Plaintiffs conclude that the Plan terminated because
"from the perspective of the Member-Insureds, their welfare
benefit plan terminated." Id. This reading of the document is
untenable. The provision that Plaintiffs point to, NEA Benefits Document §
6.3, clearly refers to the time at which participants will cease
to receive benefits, not to whether the Plan itself terminates.
This interpretation is obvious from its inclusion in Article Six
of the document, entitled "Benefit Payments," as opposed to
Article Thirteen, entitled "Amendment and Termination." In order
for Plaintiff to have an actionable claim under this section, an
ERISA plan must have terminated. Plaintiffs have shown neither
that the Plan terminated nor that Prudential's conversion
effected a termination of a benefit plan within the meaning of
Furthermore, ERISA only entitles Plaintiffs to enforce the
terms of the terminating plan. Plaintiffs fail to point to a
provision in the termination agreement that Defendants failed to
follow and that entitles them to the relief they seek, namely the
demutualization consideration, and indeed it does not appear that
one exists. See Am. Compl. Ex. D § 13.2. Plaintiffs fail to
establish a coherent theory for either termination of a plan
under ERISA or why they would be entitled to the demutualization
consideration, and accordingly the claim fails.
D. Federal Common Law Claims, Counts IV and V, Must be
Plaintiffs' Counts IV and V are federal common law claims for
"failure of express trust/resulting trust" and "unjust
enrichment-constructive trust." See Am. Compl. ¶¶ 80-91.
Defendants argue persuasively that these claims should be
1. Count IV
In Count IV, Plaintiffs allege that the NEA trust failed when
Prudential demutualized and the proceeds of that demutualization
were paid into the NEA trust. See Compl. ¶ 84. Defendants argue
that this claim must be dismissed for two reasons. First,
Defendants argue that ERISA preempts this claim, because "it is
dubious, to say the least, that ERISA . . . leaves any room for claims for relief under a federal common law theory of failure of
an express trust when the trust in issue is an ongoing
ERISA-covered trust," in light of the fact that ERISA is "`a
comprehensive and reticulated statute' intended to regulate the
benefits field in an exhaustive manner. . . ." Defs.' Mot. at 30,
quoting Nachman Corp v. Pension Benefit Guarantee Corp.,
446 U.S. 359, 361 (1980).*fn7
Second, Defendants make the substantive argument that, even if
ERISA did not preempt this claim, the Amended Complaint and
attached documents make it clear that the NEA trust has not
failed. Id. Defendants cite to comment (g) to the Restatement
(Second) of Trusts § 411,*fn8 setting out circumstances in which a trust can fail, thereby
creating a resulting trust.*fn9 Defendants point out that
Plaintiffs do not plead facts that would establish any of these
Plaintiffs attempt to salvage this claim by citing instead to
the Restatement (Third) of Trusts § 8.*fn10 Plaintiffs argue
that "[w]hen Prudential determined to mutualize, the express trust
the operation of Prudential as a mutual concern failed."
Pls.' Opp. at 37. The Court finds, however, that Defendants'
response to Plaintiffs' argument carries the day.
Defendants point out that the common law rule for creation of a
resulting trust upon the failure of an express trust is
substantively the same in the two Restatement sections. Defs.'
Reply at 22. Defendants note that Plaintiffs, in their
opposition, indicate that the alleged failed trust was the Prudential Insurance Company as a mutual insurance
company, rather than the NEA trust. Id. at 23. Indeed, as
quoted above, Plaintiffs' opposition states that "[w]hen
Prudential determined to mutualize, the express trust the
operation of Prudential as a mutual concern failed." Pls.' Opp.
at 37. However, as Defendants point out, Plaintiffs have only
alleged that they transferred funds to the NEA trust, while the
rule as set forth in the Restatement requires that the tranferee
trust (and not the transferor trust) must fail in order to
support a resulting trust claim. In light of the fact that
Plaintiffs have not alleged that the NEA trust failed,
Plaintiffs' Count IV must be dismissed.
2. Count V
In Count V, Plaintiffs attempt to recover under a federal
common law claim of unjust enrichment. See Am. Compl. ¶¶ 87-91.
In essence, Plaintiffs argue that they were entitled to the
demutualization proceeds, but that instead these funds went into
the NEA trust, which was unjustly enriched, and that the funds
should be treated as a constructive trust for Plaintiffs'
benefit. A constructive trust is a remedy granted by the court
when it determines that the person holding title to a property
would profit by a wrong or be unjustly enriched if he or she were
permitted to keep it. See Restatement (Third) of Trusts § 7,
comment g. Plaintiffs, in their opposition, claim that it is
"exceedingly unfair to allow the NEA, or other NEA persons, to
gain and the Member-Insureds to be deprived of the contractual
interest in Prudential's residual surplus." Pls.' Opp. at 38.
Defendants attack this argument on the grounds that the
demutualization proceeds are not in fact Plaintiffs' property,
but rather belong to the NEA trust, under the language of the
plan documents. Defs.' Mot. at 32. The Court has explained in
Section IV(B), supra, that pursuant to Hughes Aircraft, 525 U.S. 432, demutualization consideration
can be used to fund benefits to participants in different
programs within the NEA plan without running afoul of ERISA. In
light of the Court's finding that the demutualization proceeds do
not belong to Plaintiffs, but rather can be used in other
portions of the NEA plan, any claim of unjust enrichment must
fail. Plaintiffs are not entitled to the demutualization
consideration, and consequently the funds could not have been
used to unjustly enrich the Plan resulting in the creation of a
constructive trust for Plaintiffs' benefit.
E. Plaintiffs' State Law Claims, Counts VI-XI, are Preempted
Plaintiffs raise a number of state law claims that parallel
their federal ERISA and federal common law claims. Defendants
address these state law claims in footnotes to the discussions of
the appropriate federal law claims throughout their motion to
dismiss. See Defs.' Mot. at 14 ("In the Course f discussing
each federal claim below, we will show in the margin at the end
of the discussion of the pertinent federal claim that the
parallel D.C.-law claim is preempted by ERISA. . . .").
Plaintiffs' Opposition suggests that the Court should ignore
any notion of ERISA preemption. Pl.'s Opp'n at 39. Their
reasoning is based upon the premise that the Group Contract and
the Plan are not necessarily "employee welfare benefit plan[s]"
under 29 U.S.C. § 1002(1): "Whether such a plan exists is a
question of fact which is generally inappropriate for resolution
under Fed.R.Civ.P. 12(b)(6)." Id. (internal citations
omitted). While it is Plaintiffs' prerogative to plead state and
federal common law claims in the alternative, it is factually
undeniable that the Group Contract and the Plan are "employee
welfare benefit plans" within the meaning of ERISA even if
Plaintiffs' claims are not actionable under the ERISA statute.
See Section I, supra.
The underlying goal of ERISA is to provide a uniform regulatory
regime under federal law for employee benefit plans. Aetna
Health Inc., 124 S.Ct. 2488. In order to effectuate this goal,
Congress included "expansive" preemption provisions in ERISA to
"ensure that employee benefit plan regulation is `exclusively a
federal concern.'" Id. at 2491 (quoting Alessi v.
Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981) (citations
omitted)). ERISA's preemption clause, section 514(a),
29 U.S.C. § 1144(a), provides that "[ERISA] shall supersede any and all State
laws insofar as they may now or hereafter relate to any employee
benefit plan. . . ." 29 U.S.C. § 1144(a). The Supreme Court, most
recently in Aetna Health Inc. v. Davila and in a host of
earlier decisions, has repeatedly emphasized the expansive scope
of this provision. See Aetna Health Inc., 124 S.Ct. at 2495-98;
see also Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (1990);
Metro. Life Ins. Co. v. Taylor, 481 U.S. 58 (1987); Pilot Life
Ins. Co. 481 U.S. 41; Shaw v. Delta Air Lines, Inc.,
463 U.S. 85 (1983).
This body of law concerning ERISA is instructive in this case.
A state law is said to "relate to" an employee benefit plan if it
has a "connection with or reference to" such a plan. Shaw,
463 U.S. at 97. Explained another way, a cause of action may relate
to an ERISA plan within the meaning of Section 514(a) when it is
premised on the existence of a plan and when a court must focus
its inquiry on the plan in order to resolve the claim. See
Ingersoll-Rand, 498 U.S. at 140. Further, as the Court held in
Aetna Health Inc., a cause-of-action under ERISA's civil
enforcement scheme in Section 502(a) preempts other causes of
action provided by state or common law if the other
cause-of-action "duplicates, supplements, or supplants the ERISA
civil enforcement remedy. . . ." Aetna Health Inc.,
124 S.Ct. at 2495. Such duplication or supplementation would conflict with legislative intent to make
the ERISA remedy exclusive, and "[t]he policy choices reflected
in the inclusion of certain remedies and the exclusion of others
under [ERISA Section 502(a)] would be completely undermined if
ERISA-plan participants and beneficiaries were free to obtain
remedies under state law that Congress rejected in ERISA." Pilot
Life, 481 U.S. at 54.
Accordingly, the civil enforcement mechanism provided by ERISA
in section 502(a), relied upon by Plaintiffs in Count I of the
Amended Complaint, preempts Plaintiff's state law claims.
Furthermore, Plaintiffs' state law claims "relate to" Plaintiff's
employee welfare benefit plan within the meaning of section
514(a), 29 U.S.C. § 1144(a), because they have a "connection with
or reference to" that plan, Shaw, 463 U.S. at 97, and because
these claims "duplicate?, supplement?, or supplant?"
Plaintiff's Count I claim under section 502(a)(1)(B) for denial
of benefits. Aetna Health Inc., 124 S.Ct. at 2495. None of
Plaintiffs claims fall under the exceptions to preemption in
514(b), 29 U.S.C. § 1144(b), nor do Plaintiffs allege that they
do; consequently, the ERISA preemption standard applies to
Plaintiffs' case. Each claim will be discussed in turn below.
1. Plaintiffs' Counts VI and VII are preempted by ERISA
Plaintiffs' Count VI and VII*fn11 breach of contract claims are
based on the Group Contract, an ERISA plan that Plaintiffs claim
Defendant NEA Trust allegedly breached. See Am. Compl. ¶¶
92-98. The claims for breach of contract derive from the failure
to provide conversion privileges and deprivation of demutualization consideration.
These claims are inextricably linked to Plaintiffs' allegation
that they are entitled to the demutualization consideration as a
benefit under their ERISA welfare plan. Counts VI and VII
therefore duplicate the Count I cause of action under ERISA. As
such, Plaintiff's breach of contract claims are preempted under
Section 514(a) of the statute. 29 U.S.C. § 1144(a); see
Ingersoll-Rand, 498 U.S. at 140; see also Defs.' Mot. at 18 n.
7 (arguing that Count VI duplicates Plaintiffs' Count I, and that
Count VI is preempted by ERISA). In order to recover benefits as
a beneficiary under an employee welfare benefit plan, Plaintiffs
must rely exclusively on the remedies provided for in
2. Plaintiffs' Count VIII is Preempted by ERISA
Plaintiffs' Count VIII, breach of fiduciary duty, Am. Compl. ¶¶
99-103, is undeniably preempted by Breach of ERISA Fiduciary Duty
under 29 U.S.C. §§ 1104 and 1109. Section 409 of ERISA imposes
liability for breach of fiduciary duty, and Section 502(a)(2)
authorizes a cause of action for breach of that duty. See
29 U.S.C. §§ 1109, 1132(a)(2). Defendants make this argument in a
footnote to their discussion of Plaintiffs' Count II addressing
ERISA's fiduciary duty requirements. See Defs.' Mot. at 27 n.
12. Section 502(a)(2) provides that "[a] civil action may be
brought . . . (2) by the Secretary, or by a participant,
beneficiary, or fiduciary for appropriate relief under section
409. . . ." 29 U.S.C. § 1132(a)(2) (2005). The Supreme Court has found that "[w]here Congress elsewhere provided adequate
relief for a beneficiary's injury, there will likely be no need
for further ? relief, in which case such relief would normally
not be `appropriate.'" Varity Corp. v. Howe, 516 U.S. 489, 515
(1996) (quoting 29 U.S.C. § 1132(a)(2)); see also Kramer v.
Smith Barney, 80 F.3d 1080, 1083-84 (5th Cir. 1996) (holding
that ERISA 502(a)(2) governs claims arising out of alleged
fiduciary breaches committed by ERISA-regulated parties, and that
related state law claims are consequently preempted).
Consequently, the Court finds that Plaintiffs' Count VIII is
preempted by ERISA and shall be dismissed.
3. Plaintiffs' Count IX is Preempted by ERISA
Defendants address Plaintiffs' state law claim for tortious
interference with contractual relations in a footnote to their
discussion of Count I, arguing that Count IX, like Count VI, is a
state law variant on Count I, and that as a result Count IX is
preempted. See Defs.' Mot. at 18 n. 7. Defendants argue that
"[t]he Group Contract is a Plan document. . . . And because it is
a plan document, well-settled principles of ERISA preemption
dictate that any claim arising out of the alleged breach of the
provisions of that document must be stated under ERISA § 502 or
not at all." Id. (citing Pilot Life Ins. Co. v. Dedeaux,
481 U.S. 41, 43, 52-57 (1987)).
Plaintiffs respond that their Amended Complaint has addressed
the four elements of tortious interference with contractual
relations. See Pls.' Opp'n at 44-45. However, in light of the
fact that the Plan at issue in this case is covered by ERISA, the
Court finds that Plaintiffs arguments are unavailing. This
tortious interference claim relates to an ERISA-covered plan.,
and as such is preempted by the remedies afforded under the ERISA
4. Counts X and XI are Preempted by ERISA Plaintiffs final claims, Counts X and XI, are state law
versions of the same failure of express trust and unjust
enrichment claims raised in Counts IV and V, which were under
federal common law. Defendants argue in footnotes to their
discussions of Counts IV and V that these state law claims are
preempted. See Defs.' Mot. at 31-32 nn. 14-15. In light of the
fact that ERISA "supersedes any and all State laws insofar as
they may now or hereafter relate to any employee benefit plan,"
29 U.S.C. § 1144(a), and the broad definition of "relate"
afforded by the courts, the Court finds that Counts X and XI are
preempted and must be dismissed.
For the reasons discussed above, Plaintiffs' claims are
dismissed. Plaintiffs' claims under ERISA are dismissed because
Plaintiffs have failed to identify a benefit to which they are
entitled under the Plan, they fail to identify a breach of
fiduciary duty by Defendants and they fail to show that a plan
terminated and Defendants violated a termination agreement.
Plaintiffs' federal common law claims of failure of an express
trust and unjust enrichment are dismissed because Plaintiffs have
not alleged that the NEA trust failed, and because the Court has
found that Plaintiffs are not entitled to the demutualization
proceeds. Plaintiffs' remaining state law claims are preempted by
ERISA. An appropriate Order accompanies this Memorandum Opinion.
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