STEPHEN P. FRIOT, District Judge.
Before the court are Defendant Liberty Life Assurance Company of Boston's Motion to Dismiss Plaintiffs' First Amended Class Action Complaint (doc. no. 54), Defendants Bassett Law Firm LLC, Greta Bassett, and John R. Nelson's Motion to Dismiss Plaintiffs' First Amended Complaint (doc. no. 56) and Defendant Integrated Benefits, Inc.'s Motion to Dismiss Plaintiffs' First Amended Class Action Complaint (doc. no. 74). Upon review of all of the parties' submissions in support of and in opposition to the motions, the court makes its determination.
Plaintiffs, Larry Fortelney, Brandon Stoup, David Carter and Chelsea Carter, bring this action individually and on behalf of similarly situated individuals who received long term disability benefits from defendant, Liberty Life Assurance Company of Boston, and were required to pay defendant, Liberty Life Assurance Company of Boston, for alleged "overpayments" after receipt of social security and/or workers' compensation benefits. In their First Amended Class Action Complaint ("Amended Complaint"), plaintiffs allege both statutory and common law claims against defendant, Liberty Life Assurance Company of Boston ("Liberty"), defendants, The Bassett Law Firm, LLC, Greta Bassett and John R. Nelson (collectively "the Bassett defendants") and defendant, Integrated Benefits, Inc. ("IBI").
The inquiry under Rule 12(b)(6), Fed. R.Civ.P., is whether the Amended Complaint "`contains enough facts to state a claim for relief that is plausible on its face.'" Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). To survive a motion to dismiss, plaintiffs must nudge their claims across the line from conceivable to plausible. Id. The mere metaphysical possibility that some plaintiff could prove some set of facts in support of the pleaded claims is insufficient; the Amended Complaint must give the court reason to believe that these plaintiffs have a reasonable likelihood of mustering factual support for these claims. Ridge at Red Hawk, 493 F.3d at 1177. The court assumes the truth of plaintiffs' well-pleaded factual allegations and views them in the light most favorable to plaintiffs. Id. Pleadings that are no more than legal conclusions are not entitled to the assumption of truth; while legal conclusions can provide the framework of the Amended Complaint, they must be supported by factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1950, 173 L.Ed.2d 868 (2009). When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. Id.
Plaintiffs make the following factual allegations in the Amended Complaint, which, as previously stated, the court assumes for present purposes to be true, viewing them in a light most favorable to plaintiffs. Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d at 1177.
Liberty, an insurance company, issues group disability income policies through numerous employers throughout the United States. These policies provide long term disability benefits ("LTD benefits") to covered employees if they are unable to perform the material and substantial duties of their occupation due to injury or sickness.
One such policy ("LTD policy") is issued through OGE Energy Corp. ("OG & E") for its employees. See, Amended Complaint, ¶¶ 15, 21, and 22.
Plaintiff, Larry Fortelney ("Fortelney"), worked for OG & E. Fortelney contributed to the LTD policy issued by Liberty. In March or April of 2005, Fortelney was injured at work. He thereafter applied for LTD benefits under the LTD policy. See, Amended Complaint, ¶ 23.
By letter dated November 16, 2005, Liberty informed Fortelney that he qualified for LTD benefits. Liberty stated that Fortelney's date of disability was June 21, 2005, making him eligible for LTD benefits beginning on December 18, 2005, pursuant to the 180 day elimination period standard in the LTD policy. Liberty stated that the LTD policy required Fortelney to apply for social security benefits should his disability be expected to extend for twelve months. Liberty requested Fortelney to complete an enclosed Social Security/Reimbursement Agreement ("SSRA") and referred to an enclosed fact sheet about the advantages of applying for social security benefits. Id., ¶ 24.
The fact sheet enclosed in the November 16th letter encouraged the filing of a claim for social security benefits and stated that recipients "typically receive a large retroactive payment from Social Security shortly after their claim is approved." It advised that "[m]uch of this money is essentially money that Liberty [has] advanced to you while you were awaiting Social Security's decision, and you must pay it back to Liberty immediately." The fact sheet, however, advised that the social
The fact sheet additionally stated that it was not necessary to hire a lawyer to assist with the social security process. It advised that if a Liberty case manager believed legal assistance was necessary, Liberty would provide it and would pay for it. It further stated that Liberty had identified legal representatives throughout the United States with a strong track record in securing social security benefits for their clients and if necessary, Liberty would put that expertise to work for the policyholder. See, Amended Complaint, ¶ 25.
On November 25, 2005, Fortelney signed the SSRA which provided in part:
Id., ¶ 26; see also, Ex. 2 to Liberty's supplement to motion to dismiss (doc. no. 64).
A Liberty case manager placed Fortelney in contact with the law firm Bassett, Nelson & Associates ("BNA"), now known as defendant, Bassett Law Firm, LLC,
See, Amended Complaint, ¶ 27. On March 13, 2006, Fortelney executed the Client Overpayment Assistance Program Authorization, which specifically stated:
(Emphasis in original). See, Amended Complaint, ¶ 28.
Fortelney also executed the Consent to Share Information Regarding Social Security Disability Claim which provided:
See, Amended Complaint, ¶ 29.
Fortelney further executed the Social Security Representative Agreement which provided:
See, Amended Complaint, ¶ 30.
On March 17, 2006, Nelson sent a letter to Fortelney notifying him that he had received the forms and authorizations. He stated that "I want you to know that my goal is to provide you with the finest representation. At the conclusion of your social security claim, I hope you will feel that I have represented you in a professional and efficient manner." See, Amended Complaint, ¶ 31.
On April 13, 2007, Leah Kanne, an attorney with BNA, sent a letter to Fortelney stating that due to reorganization of caseloads, she would be handling his case and hearing. She requested that he sign two forms to change his representation with the Social Security Administration. On May 1, 2007, Fortelney signed the Third Party Fee Agreement which stated that Fortelney, the client, retained Leah Kanne to represent him for his claims for disability benefits under the Social Security Act. On May 7, 2007, Fortelney executed the Appointment of Representative, appointing Leah Kanne, as his representative in connection with his claim for social security benefits. See, Amended Complaint, ¶ 32.
On January 10, 2008, Fortelney received a letter from Maren Mellem, an attorney with BNA, stating his case had been transferred to her. Fortelney executed another Third Party Fee Agreement retaining Maren Mellem to represent him in his claim for social security benefits. See, Amended Complaint, ¶ 33.
Fortelney received a letter from Maren Mellem dated March 18, 2008 with a "friendly reminder" to advise BNA if his long term disability benefits with Liberty end at any time because it would better equip her to assist him with his social security claim. It further stated: "We want to be sure that you realize that we are here to assist you and our services will not end solely because your insurance company has stopped your benefits for long-term disability." (Emphasis in original). See, Amended Complaint, ¶ 34.
On May 19, 2008, Liberty sent a letter to Fortelney thanking him for notifying it that he was awarded social security benefits. The letter instructed Fortelney to notify Liberty immediately when he received his social security benefits check.
On July 16, 2008, defendant, Bassett Law Firm, LLC, sent a letter to Fortelney advising of the receipt of a favorable decision on Fortelney's claim for social security benefits and enclosing the notice of award of $60,671.40 in past due benefits. The letter further stated:
See, Amended Complaint, ¶ 36 (Emphasis in original).
Two days later, on July 18, 2008, Liberty sent a letter to Fortelney regarding the "Overpayment Calculation and Repayment." In that letter, Liberty made statements (similar to the statements made by defendant, Bassett Law Firm, LLC) about Fortelney's obligation to repay Liberty because Liberty had "in effect advanced [him] the money [it] expected Social Security would ultimately pay." Liberty however specifically informed Fortelney of what his reduction in benefits would be and attached an exhibit that "explain[ed] the calculation of [his] $59,121.30 balance." Liberty also stated that it would work with defendant, Bassett Law Firm, LLC, in collecting the overpayment. See, Amended Complaint, ¶ 38.
According to plaintiffs, Liberty's calculation of the alleged overpayment was grossly overstated. See, Amended Complaint, ¶ 39.
Fortelney wrote a check to defendant, Bassett Law Firm, LLC, for $59,121.30 on July 28, 2008. The check was deposited on August 7, 2008. Subsequently, on August 18, 2008, defendant, Greta Bassett, a principal of defendant, Bassett Law Firm, LLC, sent a letter to Liberty enclosing a
According to plaintiffs, despite representing that it would confirm the net overpayment due, defendant, Bassett Law Firm, LLC, never informed Fortelney that $59,121.30 was not the correct amount due to Liberty and never returned any funds to him.
On August 21, 2008, Liberty sent Fortelney a letter stating that it had received his check and it satisfied Fortelney's overpayment in full. See, Amended Complaint, ¶ 42.
Plaintiff, Brandon Stoup ("Stoup"), also worked for OG & E. On October 21, 2005, Stoup sustained injuries at work. On August 10, 2006, he was awarded workers' compensation benefits for those injuries. Liberty notified Stoup on June 7, 2007 that he was eligible for LTD benefits under the LTD policy. Liberty informed Stoup that his date of disability was November 21, 2006, making him eligible to receive LTD benefits as of May 20, 2007. Liberty requested that Stoup complete an Agreement Concerning Benefits and provide his notice of award of workers' compensation benefits. See, Amended Complaint, ¶¶ 43-44.
On June 12, 2007, Stoup executed the Agreement Concerning Benefits. The agreement provided:
See, Amended Complaint, ¶ 45, Ex. 3 to Liberty's supplement to motion to dismiss. According to plaintiffs, Liberty's "advanced payment of group disability benefits" statement was made for the purpose of getting Stoup to sign the agreement. Plaintiffs allege that Stoup was already eligible for his benefits from Liberty when he signed the agreement. See, Amended Complaint, ¶ 45.
On September 15, 2008, the Workers' Compensation Court determined that Stoup had sustained consequential injuries as a result of the accident at work and awarded him additional benefits for permanent partial disability and disfigurement. See, Amended Complaint, ¶ 46.
On December 10, 2008, Liberty sent a letter to Stoup seeking $6,782.33 because of an alleged overpayment by Liberty due to Stoup's receipt of workers' compensation
On January 7, 2009, Stoup and his attorney sent a letter questioning the validity of the requested reimbursement. Liberty responded on January 8, 2009, attaching a copy of the Agreement Concerning Benefits signed by Stoup. On February 2, 2009, Liberty sent a "Second Request" letter to Stoup threatening that Liberty would refer the overpayment balance to their "external collection agency to assist with the recovery of this overpayment balance. . . ." See, Amended Complaint, ¶ 48.
Stoup's attorney sent a letter to Liberty on February 5, 2009, stating that workers' compensation benefits were exempt from collection under Oklahoma law. The attorney "also requested authority for the action so as to avoid harm to Stoup." See, Amended Complaint, ¶ 49.
Liberty responded on September 17, 2009, again enclosing the Agreement Concerning Benefits and citing policy provisions that allegedly entitled Liberty to the overpayment. Liberty stated that "[i]f we do not receive payment or a response from you by October 1, 2009, we will refer the overpayment balance to our external collection agency. . . ." See, Amended Complaint, ¶ 50.
Plaintiff, David Carter ("Carter"), also worked for OG & E and contributed to the LTD policy issued by Liberty. Carter suffered major heart problems and applied for LTD benefits under the LTD policy. See, Amended Complaint, ¶ 60.
In a letter dated July 9, 2008, Liberty informed Carter that he qualified for LTD benefits. Liberty stated that Carter's date of disability was February 1, 2008, making him eligible for benefits beginning on July 30, 2008. The letter stated that the policy required Carter to apply for social security benefits should his disability be expected to extend for twelve months. As with Fortelney, Liberty requested Carter to complete an enclosed SSRA. Liberty enclosed fact sheet advising about the advantages of applying for social security, and informed Carter that if legal assistance was required, Liberty would provide and pay for it.
Insisting that Carter apply for social security benefits, a Liberty case manager placed Carter in contact with defendant, IBI.
See, Amended Complaint, ¶ 62.
IBI also enclosed an Application for Disability Insurance Benefits that IBI had
When Carter did not immediately respond to IBI's letter of July 10, 2008 and return the enclosed forms, IBI sent another letter on July 30, 2008, with the same completed forms for Carter's signature. An IBI representative told Carter he had to apply for social security benefits in order to receive his disability benefits under his LTD policy. See, Amended Complaint, ¶ 64.
On August 8, 2008, Carter signed the SSRA that Liberty sent to him so that he could obtain his benefits under the LTD policy. The SSRA Carter signed was identical to that signed by Fortelney. See, Amended Complaint, ¶ 65; Ex. 2 to Liberty's supplement to motion to dismiss.
On August 10, 2008, Carter also executed the forms requested by IBI, including the Representation Agreement and Social Security Electronic Repayment Authorization. Carter also signed the Appointment of Representative that named Timothy J. Peters, attorney, as his main representative. It also listed, as accepting the appointment, John Burris, Otis L. Darby, Timothy J. Peters, "Esq." and Ted Norwood, "Esq." The box indicating the representative is an attorney was also checked. See, Amended Complaint, ¶ 66.
On December 17, 2008, Liberty sent a letter to Carter thanking him for providing a copy of his notice of award from the Social Security Administration. The letter stated that Liberty would begin reducing his benefit to offset his social security benefits. It further stated that Carter had to repay any overpayment immediately. Liberty strongly suggested that he set aside his retroactive payment from social security to repay the obligation. See, Amended Complaint, ¶ 67.
On December 28, 2008, Liberty sent a letter to Carter which stated:
(Emphasis in original). The attachment stated that the overpayment due was $7,690.97 after Liberty deducted the amount it claimed it should have paid. Liberty then deducted $2,366.25 for "attorney fees" to calculate a "net overpayment due" of $5,324.72. See, Amended Complaint, ¶ 68.
On January 18, 2009, the Social Security Administration sent a notice of award to "David Carter for Chelsea Linn Carter" stating that plaintiff, Chelsea Carter, is entitled to child's benefits beginning July 2008. The notice also stated: "We have chosen you to be her representative payee. Therefore, you will receive her checks and use the money for her needs." The Social Security Administration stated that it would pay $5,731.00 around January 24, 2009 for the money due from July 2008 through December 2008. See, Amended Complaint, ¶ 70; Ex. 6 to Liberty's supplement to motion to dismiss.
On January 28, 2009, IBI e-mailed Liberty stating that it had mailed a check for $5,323.72 to Liberty. IBI stated that it was continuing to follow up on the dependent award information. IBI e-mailed Liberty on February 19, 2009 with the social security award information with respect to plaintiff, Chelsea Carter, stating that she had been paid on January 21, 2009. See, Amended Complaint, ¶ 71.
On February 23, 2009, Liberty sent a letter to Carter regarding the overpayment calculation because his "dependents were awarded Social Security benefits." The letter stated:
The attachment stated that the overpayment due was $13,426.41 after Liberty deducted the amount it alleged it should have paid. Liberty then deducted $2,366.25 for "attorney fees" and $5,324.72 for recovery of prior overpayment to calculate a "net overpayment due" of $5,735.44. According to plaintiffs, this amount was more than the lump sum amount the Social Security Administration stated it would pay for plaintiff, Chelsea Carter. See, Amended Complaint, ¶ 72.
During this time, IBI was also telling Carter that he was obligated to pay Liberty from Chelsea Carter's social security lump sum payment. See, Amended Complaint, ¶ 73.
On February 28, 2009, Carter received only $206.81 in benefits from Liberty after it offset $2,839.00 and withheld $88.00 in federal income taxes. See, Amended Complaint, ¶ 75.
On March 10, 2009, Liberty sent a letter to Carter which advised that Liberty would begin applying the monthly benefit of $294.81 toward the outstanding overpayment
Carter called the Social Security Administration and informed it that Liberty wanted him to send plaintiff, Chelsea Carter's social security benefits to them for an alleged overpayment. The representative for the Social Security Administration told Carter that it was illegal for him to use plaintiff, Chelsea Carter's money for anything other than her needs. See, Amended Complaint, ¶ 77.
On March 12, 2009, the Social Security Administration provided a Report of Confidential Social Security Benefit Information. The Social Security Administration representative stated the following:
See, Amended Complaint, ¶ 78.
On March 30, 2009, Liberty ceased paying Carter any disability benefits. The explanation of benefits stated that it offset $2,839.00 for social security benefits and applied $294.81 as a benefit adjustment amount. Liberty also applied the $88.00 it previously withheld for taxes to pay itself, as opposed to paying it to the government as Carter had directed. See, Amended Complaint, ¶ 79.
On May 7, 2009, Liberty sent a letter to Carter after receiving correspondence from the Social Security Administration regarding social security benefits paid to Carter and his daughter. Liberty stated in the letter:
See, Amended Complaint, ¶ 80.
Carter spoke to an IBI representative who told him he must pay Liberty from the lump sum attributable to plaintiff Chelsea Carter. Carter told the IBI representative about the Social Security Administration's notice that use of the funds in such a manner was fraud. Subsequently, a different IBI representative contacted Carter and told Carter that IBI had nothing more to do with the issue. The IBI representative said that IBI had not received any payment from plaintiff, Chelsea Carter and were not representing her. See, Amended Complaint, ¶ 81.
According to plaintiffs, Liberty has taken Chelsea Carter's past due social security benefits by withholding all benefits owed to Carter that he would have otherwise been paid. Liberty offsets Carter's LTD benefits by the amount of benefits plaintiff, Chelsea Carter, receives. However, plaintiffs allege that Liberty does not pay any extra benefits to policyholders who have dependents. Liberty also charged Carter the same premium it charged other policyholders whose benefits were not reduced by dependents' social security benefits. See, Amended Complaint, ¶¶ 82, 83.
Plaintiffs allege, on information and belief, Liberty seeks recoupment from all of its policyholders who receive funds from social security or workers' compensation for "overpayments." According to plaintiffs, the policyholders, entitled to LTD benefits, are induced to execute agreements to repay Liberty for the "overpayments" from their social security or workers' compensation benefits.
Plaintiffs also allege, on information and belief, that Liberty seeks recoupment of "overpayments" from all of its policyholders whose dependents receive social security benefits. Plaintiffs allege that Liberty has either directly taken the lump sum social security payments received by these dependents or Liberty has obtained the funds by other means, such as deducting all of the policyholders' benefits to recoup the alleged "overpayments."
In the Amended Complaint, plaintiffs seek to prosecute a class action under Rule 23, Fed.R.Civ.P., and propose six subclasses. The first five subclasses are all individuals who received long term disability benefits from Liberty and
(1) assigned or paid funds to Liberty from payments received from the Social Security Administration ("Liberty/SS subclass");
(2) assigned or paid funds to Liberty from payments received from the Social Security Administration for the benefit of their dependents ("Liberty/SS payee subclass");
(3) assigned or paid funds to Liberty from payments received pursuant to Oklahoma Workers' Compensation law ("Liberty/WC subclass");
(4) retained the Bassett Law Firm, LLC, Greta Bassett, Leah Kanne, Maren Mellem or John Nelson as their legal counsel ("Bassett subclass");
(5) retained IBI as their legal counsel or social security representative ("IBI subclass").
The Amended Complaint (Counts I through X) alleges one federal claim and nine state law claims against Liberty. The claims and the plaintiffs who allege the claims are as follows:
Count I—Violation of Social Security Act, 42 U.S.C. § 407—Fortelney, Carter, Chelsea Carter, Liberty/SS subclass, Liberty/SS payee subclass and Liberty/SS dependent subclass
Count II—Violation of the Oklahoma Workers' Compensation Act, 85 O.S. § 48—Stoup and Liberty/WC subclass
Count III—Fraud Under Oklahoma and Massachusetts Law—Fortelney, Stoup, Carter, Liberty/SS subclass, Liberty/SS payee subclass and Liberty/WC subclass
Count IV—Violation of 76 O.S. § 2— Deceit—Fortelney, Stoup, Carter, Liberty/SS subclass, Liberty/SS payee subclass and Liberty/WC subclass
Count V—Conspiracy Under Oklahoma and Massachusetts Law—Fortelney, Carter, Bassett subclass and IBI subclass
Count VI—Breach of Contract—Fortelney, Stoup, Carter, Liberty/SS subclass, Liberty/SS payee subclass and Liberty/WC subclass
Count VII—Violation of Massachusetts Unfair Trade Practices Act, Mass. Gen. Laws Ch. 93A § 2—All plaintiffs and all subclasses
Count VIII—Violation of 36 O.S. § 902—Excessive Premiums—Fortelney, Stoup, Carter, Liberty/SS subclass, Liberty/SS payee subclass and Liberty/WC subclass
Count IX—Unjust Enrichment—All plaintiffs and all subclasses
Count X—Conversion—All plaintiffs and all subclasses
The Amended Complaint (Counts XXVIII) alleges one federal claim and seven state law claims against the Bassett defendants. The federal claim and state law claims are alleged by Fortelney and the Bassett subclass.
Count XI—Violation of Social Security Act, 42 U.S.C. § 407
The Amended Complaint (Counts XIXXV) alleges one federal claim and six state law claims against IBI. The federal law claim is alleged by Carter, Chelsea Carter and the IBI subclass. The state claims are alleged by Carter and the IBI subclass.
In sum, twenty-five claims are alleged in plaintiffs' Amended Complaint. Defendants, as stated, seek to dismiss all of the claims. Specifically, defendants seek to dismiss the federal statutory claims (violation of the Social Security Act, 42 U.S.C. § 407) under Rule 12(b)(6), Fed.R.Civ.P., for failure to state a claim upon which relief can be granted. As to the state statutory and common law claims, defendants seek dismissal on the basis that the claims are either preempted by the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1002-1461 ("ERISA") or they fail to state a claim upon which relief can be granted. Defendants further assert that the fraud and deceit claims are subject to dismissal because they are not alleged with particularity as required by Rule 9(b), Fed.R.Civ.P.
The LTD Policy
Ex. 1 to Liberty's motion, Section 2, DE6/7, Section 4, LTD-1 (Emphasis added).
Other Income Benefits means:
Ex. 1 to Liberty's motion, Section 4, LTD-22, LTD-23 (Emphasis added).
Ex. 1 to Liberty's motion, Section 4, LTD-24 (Emphasis added).
Ex. 1 to Liberty's motion, Section 7, GNP-4.
Fortelney, Carter, and Chelsea Carter allege claims for violation of the Social Security Act, specifically, 42 U.S.C. § 407(a). See, Amended Complaint (Counts I, XI and XIX). Under § 407(a), the right to future payment of social security benefits is not "transferable or assignable" and funds paid or payable for social security benefits are not "subject to execution, levy, attachment, garnishment, or other legal process."
Defendants assert that § 407(a) does not bar Liberty's practice of offsetting social security benefits against the amount of LTD benefits payable under the LTD policy. According to defendants, the social security offset against LTD benefits reduces a participant's LTD benefits but does not alter the social security benefits received by a participant or his dependents. Moreover, defendants assert that Liberty's implementation of the offset through the recoupment of LTD benefits advanced pending the receipt of social security benefits (the "overpayment") is permissible under § 407(a). Defendants maintain that case law specifically authorizes an insurance company, such as Liberty, to recoup the amounts it has advanced to a participant. In so doing, defendants contend that Liberty is not asserting a right to the participant's social security benefits, rather it is seeking the return of the overpayment. Defendants also argue, as an additional basis for dismissal, that § 407(a) does not create a private right of action in favor plaintiffs.
In response, plaintiffs argue that defendants have mischaracterized the basis for their § 407(a) claims. Plaintiffs assert that their claims are not premised upon Liberty's contractual offset of social security benefits. They assert that their claims are based on the "illegal agreements assigning their Social Security money, the unlawful taking of their lump sum retroactive Social Security funds awarded to the policyholders and their dependents, and Liberty's practice of offsetting dependents' funds, which are not the policyholders' income under the law." See, plaintiffs' omnibus response, (doc. no. 73), p. 20. Specifically, plaintiffs assert that the SSRAs executed by Fortelney and Carter are prohibited under § 407(a). These agreements, plaintiffs assert, gave Liberty "a first lien" on their social security benefits and stated that the social security benefits were to be held "in trust" for the benefit of Liberty. Moreover, plaintiffs assert that while they do not have any evidence that defendants enforced the "lien" by way of a court action, defendants threatened to do so and these threats also constitute a violation of § 407(a).
In addition, plaintiffs assert that the Bassett defendants demanded that Fortelney execute the Client Overpayment Assistance Program Authorization, which required Fortelney to "promise" to forward a check to BNA for the total amount received as social security benefits. Plaintiffs contend that by such action, defendants
In their papers, plaintiffs additionally argue that the cases cited and relied upon by defendants to support their arguments in regard to the § 407(a) claims are from outside the Tenth Circuit. Plaintiffs contend these cases are not controlling, the factual circumstances are distinguishable and the cases were erroneously decided. Although the Supreme Court and the Tenth Circuit have not directly addressed the issues in this case, plaintiffs contend that the Supreme Court's decision in Philpott v. Essex County Welfare Bd., 409 U.S. 413, 416, 93 S.Ct. 590, 34 L.Ed.2d 608 (1973), and the Tenth Circuit's decision in Tom v. First Amer. Credit Union, 151 F.3d 1289, 1292 (10th Cir.1998), are instructive and support plaintiffs' claims that defendants' actions violated § 407(a).
Upon review, the court concludes that dismissal of the § 407(a) claims is appropriate. Although defendants have challenged whether plaintiffs may bring a private right of action under § 407(a), the court, assumes without deciding, that § 407(a) creates a private right of action in favor of plaintiffs. Nonetheless, the court concludes that the allegations in the Amended Complaint fail to establish a violation of § 407(a) by the defendants.
Initially, the court finds that Liberty was authorized to require the offset of social security benefits paid to a policyholder and any dependents against the amounts payable to the policyholder under the LTD policy. Under the specific terms of the LTD policy, LTD benefits are reduced by "Other Income Benefits," which includes social security benefits that the policyholder "receives or is eligible to receive" and that "his spouse, child or children receives or are eligible to receive because of [the policyholder's] Disability." See, Liberty's motion, Ex. 1, LTD-1, LTD-22. Courts have enforced disability benefit plans which include such offset provisions. See, Leonelli v. Pennwalt Corp., 887 F.2d 1195, 1198-99 (2nd Cir.1989); Lamb v. Conn. Gen. Life Ins. Co., 643 F.2d 108, 109-12 (3rd Cir.1981), cert denied, 454 U.S. 836, 102 S.Ct. 139, 70 L.Ed.2d 116 (1981); Dowell v. Aetna Life Ins. Co., 468 F.2d 802, 804-05 (4th Cir.1972).
The court additionally concludes that Liberty was entitled to seek reimbursement of LTD benefits paid to Fortelney and Carter, without a reduction for social security benefits, when they received their lump-sum retroactive social security benefits. The LTD policy expressly provides that Liberty has a right to recover any "overpayment of benefits" caused by the policyholder's receipt of "Other Income Benefits." See, Liberty's motion, Ex. 1, GNP-4. The LTD policy also provides that Liberty may recover an overpayment by "requesting a lump sum payment" of the overpaid amount; reducing "any benefits payable" under the policy; taking any "appropriate collection activity available" or "placing a lien, if not prohibited by law, in the amount of the overpayment." Id. It further provides that full reimbursement is to be made to Liberty. Id. Plaintiffs additionally signed a reimbursement agreement which provided for the repayment in full of an overpayment. Courts have permitted equitable claims to be filed against claimants, seeking restitution of the overpayments under ERISA, 29 U.S.C. § 1132(a)(3). See, Cusson v. Liberty Life Assur. Co. of Boston, 592 F.3d 215, 230-232 (1st Cir.2010); Dillard's Inc. v. Liberty Life Assur. Co. of Boston, 456 F.3d 894, 900-901 (8th Cir. 2006); Gilchrest v. Unum Life Insurance Co. of America, 255 Fed.Appx. 38, 44-46 (6th Cir.2007). Courts have found these claims not to violate § 407(a) because the insurance company did not seek to recover the policyholder's social security benefits (although the amount in question was the same as the amount of the claimant's social security benefits), rather, the insurance company was seeking to recover in equity from funds the plan has already paid under the long term disability benefits plan. See, Cusson, 592 F.3d at 232; Parent v. Principal Life Ins. Co., 763 F.Supp.2d 257, 261-62 (D.Mass.2011); Schlenger v. Fidelity Employer Services Co., LLC, 785 F.Supp.2d 317, 334-35, 2011 WL 1236156 *13 (S.D.N.Y. Mar. 31, 2011); Mugan v. Hartford Life Group Ins. Co., 765 F.Supp.2d 359, 373-75 (S.D.N.Y.2011); Bosin v. Liberty Life Assur. Co. of Boston, 2007 WL 1101187 *11 (W.D.Mich. April 11, 2007).
In addition, a district court has permitted recoupment of an overpayment by withholding future benefit payments under a long term disability plan, finding that such action did not violate § 407(a). Stuart v. Metropolitan Life Ins. Company, 664 F.Supp. 619, 625 (D.Me.1987).
In the case at bar, Liberty did not seek reimbursement of the overpayments to Fortelney and Carter by filing an equitable claim for restitution under § 1132(a)(3). The allegations of the Amended Complaint, however, reveal that as to the overpayment of LTD benefits to Carter based upon Chelsea Carter's receipt of retroactive social security benefits, Liberty withheld all LTD benefits owed to Carter to recover the overpayment. The court, agreeing with the district court in Stuart, finds that the withholding of future disability benefits until the overpayment based upon the social security benefits paid to Chelsea Carter was recouped was permissible and did not violate § 407(a). Stuart, 664 F.Supp. at 625. Moreover, such action was in accordance with the LTD policy and the SSRA executed by Carter. See, Liberty's motion, Ex. 1, GNP-4; Ex. 2 to Liberty's supplement to motion to dismiss.
Turning to defendants' actions in recovering the overpayments to Fortelney and Carter based upon their receipt of retroactive social security benefits, the court finds that those actions likewise do not violate § 407(a). Although Liberty required plaintiffs to sign the SSRAs, the court concludes that those agreements are not assignments. While the SSRAs provide that Liberty has a "first lien" on the social security benefits and that the benefits are to be held "in trust," they cannot be construed so as to assign "the right of future payment" of social security benefits to Liberty. And although the SSRAs provide for a "first lien" on the awarded social security benefits, there are no allegations in the Amended Complaint that Liberty ever sought to enforce its "first lien" against plaintiffs. Therefore, none of the funds paid under the Social Security Act were subject to "execution, levy, attachment, garnishment, or other legal process." 42 U.S.C. § 407(a).
The court rejects plaintiffs' argument that IBI's recoupment of the overpayment to Carter by withdrawing his retroactive social security benefits from his bank account in accordance with the Social Security Electronic Repayment Authorization agreement constitutes "other legal process." In support of their argument, plaintiffs rely upon the Tenth Circuit's ruling in Tom v. First Amer. Credit Union. In that case, an account holder sued a credit union for violation of § 407(a) when it seized or setoff the account holder's funds consisting of social security benefits for payment of a debt owed to the credit union. The credit union argued that an equitable self-help remedy, such as a setoff, was not "other legal process" and was therefore outside the scope of § 407(a). The Tenth Circuit disagreed:
Tom, 151 F.3d at 1293. After the Tenth Circuit's ruling in Tom, the Supreme Court, in Washington State Department of Social and Health Services v. Guardianship Estate of Keffeler, 537 U.S. 371, 123 S.Ct. 1017, 154 L.Ed.2d 972 (2003), specifically addressed the term "other legal process" as used in § 407(a). The court determined that such term had a very narrow meaning, and that such process:
Keffeler, 537 U.S. at 385, 123 S.Ct. 1017. In light of the Supreme Court's ruling,
As none of the alleged actions of defendants challenged by plaintiffs in the Amended Complaint violate § 407(a), the court concludes that plaintiffs cannot state a claim upon which relief may be granted against defendants. The court therefore concludes that the claims of Fortelney, Carter and Chelsea Carter for violation of § 407(a) (Counts I, XI and XIX) are subject to dismissal under Rule 12(b)(6).
As to the remaining state statutory and common law claims, defendants argue that all of the claims are preempted by ERISA. Although the Amended Complaint fails to mention ERISA, defendants maintain that plaintiffs are in fact seeking additional benefits under the LTD policy, which is a "welfare plan" covered by ERISA. Defendants assert that any attempt by plaintiffs to recover additional benefits under the LTD policy can only be brought under section 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B). However, defendants point out that plaintiffs have already received all that they are entitled to under ERISA and that they accordingly have no viable claim under ERISA for additional benefits. In addition, defendants contend that plaintiffs have not exhausted their administrative remedies. Defendants also argue that plaintiffs' claims are preempted by ERISA because they challenge the administration of the LTD policy and the propriety of processing and applying the terms of the LTD policy. Finally, defendants argue that even if the `state claims are not preempted by ERISA, the fraud and deceit claims are not alleged with particularity as required by Rule 9(b) and each of the claims are subject to dismissal under Rule 12(b)(6).
Plaintiffs, in response, do not dispute that the LTD policy is an ERISA-covered plan. However, with the exception of their breach of contract claim against Liberty, plaintiffs contend that their state claims are not preempted.
In reply, defendants contend that plaintiffs' argument that their state claims escape preemption because they relate only to the reimbursement agreements, rather than the LTD policy, is refuted by the express terms of the LTD policy. Defendants point out that the reimbursement agreements are specifically referenced in the LTD policy, are an integral part of offset/reimbursement provisions of the LTD policy, and are a part of the LTD policy and its administration. Defendants contend that the very same reimbursement provisions contained in the reimbursement agreements are contained in the LTD policy. Defendants argue that plaintiffs' state claims indisputably "relate to" the administration of the reimbursement provisions of the LTD policy. In addition, defendants argue that contrary to plaintiffs' assertion, ERISA does not require that the reimbursement agreements be filed with the Secretary of Labor. Defendants maintain that no plan documents or plan descriptions are required to be filed with the Secretary of Labor. Therefore, defendants contend that plaintiffs' argument that the reimbursement agreements are not part of the LTD policy because they were not filed with the Secretary of Labor is ill-founded.
Defendants also contend that Chelsea Carter's claims are preempted by ERISA. They argue that Chelsea Carter is seeking additional LTD policy benefits for her father by challenging the offset/recoupment provisions in the LTD policy. Defendants
The ERISA preemption provision is set forth in 29 U.S.C. § 1144(a) and provides as follows:
29 U.S.C. § 1144(a).
Before preemption will be found, three requirements must be met. "There must be a state law, an employee benefit plan, and the state law must `relate to' the employee benefit plan." Airparts Co., Inc. v. Custom Ben. Services of Austin, Inc., 28 F.3d 1062, 1064 (10th Cir.1994) (quotation omitted). The issue before the court in this case is whether plaintiffs' state claims against defendants "relate to" the LTD policy.
"A law `relates to' an employee benefit plan, in the normal sense of the phrase, if it has connection with or reference to such a plan." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983) (footnote omitted). Hence, even if a state law is not specifically directed toward the regulation of an ERISA plan or affects such a plan only indirectly, it can still be found to "relate to" a plan. Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 139, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990).
"There is no simple test for determining when a law `relates to' a plan." Airparts Co., Inc., 28 F.3d at 1064. The Tenth Circuit has recognized four categories of state laws that are preempted by ERISA: (1) laws regulating the type of benefits or terms of ERISA plans; (2) laws creating reporting, disclosure, funding or vesting requirements for such plans; (3) laws providing rules for calculating the amount of benefits to be paid under such plans; and (4) laws and common-law rules providing remedies for misconduct growing out of the administration of such plans. David P. Coldesina, D.D.S., P.C., Emp. Profit Sharing Plan & Trust v. Estate of Simper, 407 F.3d 1126, 1136 (10th Cir.2005).
At the same time, the Tenth Circuit recognizes that ERISA does not preempt all state law claims.
Airparts Co., Inc., 28 F.3d at 1065. In addition, ERISA has no bearing on those state laws "which do [ ] not affect the relations among the principal ERISA entities, the employer, the plan, the plan fiduciaries and the beneficiaries as such." Woodworker's Supply, Inc. v. Principal Mut. Life Ins. Co., 170 F.3d 985, 990 (10th Cir.1999) (quotation and internal quotation omitted). "As a corollary, actions that affect the relations between one or more of these plan entities and an outside party similarly escape preemption." Id. (quoting Airparts Co., Inc., 28 F.3d at 1065.)
So while the ERISA preemption provision is "clearly expansive," it is not limitless. N.Y. State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655-62, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995). "Some state actions may affect employee benefits plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law `relates to' the plan." Shaw, 463 U.S. at 100 n. 21, 103 S.Ct. 2890. "What triggers ERISA preemption is not just any indirect effect on administrative procedures but rather an effect on the primary administrative functions of benefit plans, such as determining an employee's eligibility for a benefit and the amount of that benefit." Airparts Co., Inc., 28 F.3d at 1065. "Indeed, `[a]s long as a state law does not affect the structure, the administration, or the type of benefits provided by an ERISA plan, the mere fact that the [law] has some economic impact on the plan does not require that the [law] be invalidated.'" Estate of Simper, 407 F.3d at 1136 (quoting Airparts Co., Inc.).
With the above principles in mind, the court concludes that plaintiffs' state claims against Liberty for fraud, deceit, conspiracy, breach of contract, unjust enrichment and conversion (Counts III, IV, V, VI, IX and X) are preempted by ERISA. The claims implicate the terms and administration of the LTD policy and challenge the calculation of the amount of benefits to be paid from the LTD policy. The claims also seek to remedy misconduct growing out of the administration of the LTD policy. Moreover, the claims, as alleged, affect the relations among the principal ERISA entities. The court opines that the state claims alleged against Liberty directly "relate to" the LTD policy, which is indisputably an ERISA-covered plan. Consequently, the court finds that the state claims are preempted.
Although plaintiffs argue that their state claims are not preempted because they relate to the reimbursement agreements (the SSRAs and Agreement Concerning Benefits) and not the LTD policy, the court disagrees. As pointed out by defendants, the reimbursement agreements are specifically referenced in the LTD policy. The LTD policy provides that the LTD benefits will be reduced by an estimate of the "Other Income Benefits" (social security and workers' compensation benefits) unless the policyholder "signs a reimbursement agreement under which, in part, the [policyholder] agrees to repay Liberty for any overpayment resulting from the award or receipt of Other Income Benefits." See, Ex. 1 to Liberty's motion, Section 4, LTD-24. Moreover, the reimbursement provisions contained in the LTD policy are also mentioned in the reimbursement agreements. See, Ex. 1 to Liberty's motion, Section 4, GNP-4. The court thus concludes that the reimbursement agreements are a part of the LTD policy and its administration.
In addition, the court finds that the state law claims against Liberty for fraud, deceit, conspiracy, breach of contract, unjust enrichment and conversion, also challenge the calculation of the amount of plaintiffs' benefits. Specifically, with respect to the tort claims, plaintiffs allege that:
See, Amended Complaint, ¶ 116 (Count III—fraud claim).
See, Amended Complaint, ¶ 122 (Count IV—deceit claim).
See, Amended Complaint, ¶ 128 (Count V—conspiracy claim).
See, Amended Complaint, ¶ 151 (Count IX—unjust enrichment claim).
As to the breach of contract claim against, the Amended Complaint alleges:
See, Amended Complaint, ¶ 135 (Count VI—breach of contract).
In sum, the court concludes based upon these referenced allegations in the Amended Complaint that plaintiffs' state tort and breach of contract claims (Counts III-VI, IX, X) are preempted by ERISA because they challenge the calculation of the amount of benefits owed to plaintiffs. See, Revells v. Metropolitan Life Ins. Co., 261 F.Supp.2d 1359 (M.D.Ala.2003) (state law claims of breach of contract and bad faith refusal to pay benefits based on defendants' reduction of disability insurance benefits resulting from the policy's social security set-off provision preempted by ERISA).
As to plaintiff Stoup's claim against Liberty under the Oklahoma Workers' Compensation Act, specifically, 85 O.S. § 48 (Count II),
Plaintiffs further argue that plaintiff Stoup's § 48 claim against Liberty is not preempted because the "gravamen of this case is the unlawful collection scheme designed by the Defendants to fill their coffers." See, plaintiffs' omnibus response (doc. no. 73), p. 17. Although plaintiff Stoup is challenging the Agreement Concerning Benefits which Liberty required him to sign, this agreement is a reimbursement agreement referred to in the LTD policy. Plaintiff Stoup also attacks the reimbursement provisions set forth in the LTD policy. Consequently, plaintiff Stoup's § 48 claim relates to the LTD policy in that it challenges the terms and administration of the LTD policy. The court therefore concludes that the § 48 claim is preempted by ERISA.
As previously noted, plaintiffs state that they wish to dismiss their claims without prejudice for violation of the Massachusetts Unfair Trade Practices Act, Mass. Gen. Laws Ch. 93A § 2 (Count VII) and 36 O.S. § 902 (Count VIII—Excessive Premiums). Liberty, however, urges the court to dismiss the claims with prejudice because they are preempted by ERISA. The court concludes that the claims are preempted by ERISA because they challenge the administration of the plan. Consequently, the court concludes that claims should be dismissed on the basis of ERISA preemption. The dismissal will be without prejudice—but leave to amend will be denied because plaintiffs clearly cannot satisfy the exhaustion requirement.
Plaintiffs further argue that the state claims of Chelsea Carter are not preempted because she is not a principal ERISA entity. Plaintiffs rely upon the language in Woodworker's Supply, Inc. v. Principal Mut. Life Ins. Co., and Airparts Co., Inc. v. Custom Ben. of Austin, Inc., wherein the Tenth Circuit stated that "actions that affect the relations between one or more of these plan entities and an outside party [ ] escape preemption." Woodworker's Supply, Inc., 170 F.3d at 990; Airparts Co., Inc., 28 F.3d at 1065. The court, however, concludes that plaintiff Chelsea's claims of unjust enrichment and conversion (Counts IX and X) and violation of the Massachusetts Unfair Trade Practices Act, Mass. Gen. Laws Ch. 93A § 2 (Count VII) are preempted. In Count IX of the Amended Complaint relating to the claim of unjust enrichment, plaintiffs allege:
See, Amended Complaint, ¶¶ 152-153.
Chelsea Carter's unjust enrichment claim cannot be characterized as "affect[ing] the relations of one or more of [the] plan entities and an outside party." Woodworker's Supply, Inc., 170 F.3d at 990. Rather, the unjust enrichment claim
The court likewise concludes that plaintiff Chelsea Carter's conversion claim (Count X) and her claim for violation of Massachusetts Unfair Trade Practices Act, Mass. Gen. Law Ch. 93A § 2 (Count VII) are preempted by ERISA. They clearly relate to the administration of the LTD policy and the calculation of the benefit formula by Liberty. Indeed, as to her conversion claim, Chelsea Carter avers that Liberty wrongfully exerted dominion over her social security benefits. According to the Amended Complaint, "Liberty has taken Chelsea's past due benefits from Social Security by withholding all benefits owed to Carter that he would have otherwise been paid . . . Liberty offsets Carter's LTD benefit[s] by the amount of benefits Chelsea receives." In addition, as to her statutory claim, Chelsea Carter alleges that "Liberty's acts, practices and conduct, as alleged herein, are unfair to Chelsea Carter." As Chelsea Carter's claims involve the terms and administration of the LTD policy and the calculation of benefits under it, the court finds that the claims relate to the LTD policy. Consequently, the court finds the claims are preempted by ERISA.
In sum, the court concludes that plaintiffs' state statutory and common law claims against Liberty (Counts II-X) are preempted by ERISA and therefore may not be maintained. Thus, the court finds plaintiffs' state statutory and common law claims against Liberty are subject to dismissal based upon ERISA preemption.
The court finds that Fortelney's state claims against the Bassett defendants for fraud, deceit, breach of contract, breach of fiduciary duty and negligence (Counts XII, XIII, XV, XVI and XVII) are not preempted by ERISA. The court reaches the same conclusion as to Carter's claims against IBI for fraud, deceit, breach of fiduciary duty and negligence (Counts XX, XXI, XXIII, and XXIV). Unlike the claims against Liberty, the court concludes that Fortelney's claims against the Bassett defendants and Carter's claims against IBI do not affect the structure, administration or type of benefits to be provided by the LTD policy. Nor do they seek to remedy misconduct growing out of the administration of the LTD policy. In addition, unlike the claims against Liberty, the court concludes that Fortelney's claims against the Bassett defendants and Carter's claims against IBI are not seeking additional benefits under the LTD policy. "[M]erely because [plaintiffs] damages would be based upon the amount of potential plan benefits does not implicate the administration of the plan, and is not consequential enough to connect the action with, or relate the action to, the plan." Hospice of Metro Denver, Inc. v. Group Health Ins., Inc., 944 F.2d 752, 755 (10th Cir.1991).
The fraud and deceit claims brought by Fortelney and Carter involve misrepresentations
Defendants also challenge Fortelney and Carter's fraud and deceit claims under Rule 9(b), Fed.R.Civ.P. Upon review, the court concludes that the fraud and deceit claims are not pled with particularity as required by Rule 9(b). The Amended Complaint fails to "set forth the time, place, and contents of the false representation[s], the identity of the party making the false statements and the consequences thereof." Koch, 203 F.3d at 1236. In other words, the Amended Complaint does not provide "`the who, what, when, where, and how'" for the claims. Caprin, 99 Fed.Appx. at 158 (quoting DiLeo, 901 F.2d at 627).
As an example, IBI, in its motion, challenges the alleged misrepresentation that Carter was required to apply for social security benefits. The court concludes that more particularity about this statement is required. In paragraph 64 of the Amended Complaint, plaintiffs allege that "[a]n IBI representative told Carter that he had to apply for Social Security benefits in order to receive his disability benefits under the Liberty policy." See, Amended Complaint, ¶ 64. Although the Amended Complaint refers in that same paragraph to a letter sent by IBI to Carter on July 30, 2008, it does not allege that the purported misrepresentation by the IBI representative was made in that July 30th letter. Id. If IBI allegedly represented to Carter "prior" to the signing of an reimbursement agreement
In addition, IBI challenges the alleged misrepresentation that IBI told Carter that "[he] had to send [his] Social Security lump sum payments to IBI and/or Liberty" and "[he] must pay [his] Social Security benefits to Liberty." See, Amended Complaint, ¶¶ 208, 214 and ¶¶ 69, 73. Plaintiffs may also be able to show that these alleged statements were false. Although LTD policy and the reimbursement agreements require the policyholders to repay Liberty in full for the overpayments, the LTD policy and reimbursement agreement also provide that Liberty may withhold future benefits until the overpayment is recovered in full. The LTD policy provided that even the minimum monthly benefit otherwise payable could be applied toward satisfying the overpayment. See, Ex. 1 to Liberty's motion, LTD-1. Indeed, in regard to the overpayment based upon Chelsea Carter's receipt of retroactive social security benefits, Liberty reduced Carter's benefits by the amount Chelsea Carter received. See, Amended Complaint, ¶ 83. In addition, plaintiffs did not have to pay the overpayment from their social security payments. Instead, the payments could be paid by other assets. Although Liberty "strongly suggested" that Carter set aside his retroactive social security benefit payment, see, Amended Complaint, ¶ 67, plaintiffs have not alleged that Liberty actually required Carter to repay the overpayment from his social security benefits. Furthermore, Liberty advised Carter that it would "work with IBI in regards to collecting this overpayment." Id. ¶¶ 68, 72.
The court therefore concludes that Fortelney and Carter's fraud and deceit claims should be dismissed without prejudice for failure to comply with Rule 9(b). The court, however, will grant plaintiffs leave to amend to allege the fraud and deceit claims with particularity.
As to the claim alleged against the Bassett defendants for breach of contract and as to the claims of negligence and breach of fiduciary duty alleged against the Bassett defendants and IBI, which the court has found not to be preempted, the court concludes that the claims survive dismissal under Rule 12(b)(6).
The court notes that IBI has specifically challenged Carter's negligence and breach of fiduciary duty claims on the
As to Fortelney and Carter's claims of conspiracy (Count XIV and Count XXII), the court finds that the claims fail to state a claim for relief to the extent they are based upon "unlawful acts" consisting of violations of § 407(a). Under Oklahoma law, a civil conspiracy itself does not create liability. An unlawful purpose or use of unlawful means is required. Brock v. Thompson, 948 P.2d 279, 294 (Okla.1997). The court has found in this order that defendants did not violate § 407(a). Therefore, plaintiffs cannot base their conspiracy claims on alleged violations of § 407(a). To the extent the conspiracy claims are based upon the alleged "unlawful acts" of Liberty, such as the alleged fraud and deceit, the court finds that the claims are preempted by ERISA. The court concludes that such claims implicate the terms and the administration of the LTD policy and the calculation of benefits by Liberty. To the extent that the conspiracy claims are based only upon the alleged "unlawful acts" of the Bassett defendants and IBI, the court does not find that the claim is preempted. The court further concludes that those claims survive dismissal under Rule 12(b)(6).
The final state claim alleged against the Bassett defendants and IBI is conversion (Count XIV and Count XXV). The court has previously concluded in this order that the Bassett defendants and IBI did not violate § 407(a) in their conduct regarding the repayment of plaintiffs' overpayment obligations to Liberty. None of the actions taken by these defendants are sufficient to state a claim for relief under § 407(a). To the extent that plaintiffs' conversion claim is based upon defendants' purported violations of § 407(a), the court concludes that such claim is subject to dismissal under Rule 12(b)(6) because plaintiffs cannot show any violations of § 407(a). To the extent that plaintiffs' conversion claim is based upon funds being sent to defendants to assist plaintiffs in meeting the alleged overpayment obligations under the LTD policy and the SSRAs, the court finds that plaintiffs' claim is preempted by ERISA. Such a claim implicates the terms of the LTD policy and the calculation of benefits by Liberty. They challenge whether the amounts paid to defendants and sent to Liberty were owed under the LTD policy and SSRAs. Although the claim is against the Bassett defendants and IBI rather than Liberty, these claims clearly relate to the LTD policy and are preempted by ERISA.
In their briefing, plaintiffs request that if the court concludes that ERISA
ERISA contains no explicit exhaustion requirement. Nonetheless, the Tenth Circuit has determined that exhaustion of administrative remedies is an implicit pre-requisite to seeking judicial relief. McGraw v. Prudential Ins. Co., 137 F.3d 1253, 1263 (10th Cir.1998). This requirement "derives from the exhaustion doctrine permeating all judicial review of administrative agency action, and aligns with ERISA's overall structure of placing primary responsibility for claim resolution on fund trustees." Id. (citations omitted). Any other procedure would permit "premature judicial interference" and "would impede those internal processes which result in a completed record of decision making for a court to review." Id. Courts have eschewed exhaustion under two limited circumstances: first, when resort to administrative remedies would be futile; or second, when the remedy provided is inadequate. Id.
Plaintiffs contend that exhaustion would be futile and inadequate because Liberty has disputed that plaintiffs are entitled to their social security and workers' compensation benefits. In order to satisfy the futility exception to the exhaustion doctrine, a plaintiff must establish that "it is certain that [his] claim will be denied on appeal, not merely that [he] doubts that an appeal will result in a different decision." Rando v. Standard Ins. Co., 1999 WL 317497, *4 (10th Cir. May 20, 1999) (quoting Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th Cir.1996)). Plaintiffs' claim of futility is based only on supposition. They merely claim that because Liberty disputes entitlement to the benefits, the remedy is futile. However, success of a claim of futility requires a "clear and positive showing of futility." Rando, 1999 WL 317497 at *4; see also, Getting v. Fortis Benefits Ins. Co., 5 Fed. Appx. 833 (10th Cir.2001) (conclusory statement that appeal would have been futile not sufficient to excuse exhaustion of administrative remedies).
In their briefing, plaintiffs also argue that the exhaustion requirement has been waived by Liberty. According to plaintiffs, Liberty failed to give any notice of their appeal rights or review rights after they took their social security and workers' compensation benefits. Because of a failure to give notice, plaintiffs contend that Liberty waived the exhaustion requirement.
Because the court concludes that plaintiffs have failed to meet their burden to show that exhaustion of their administrative remedies would be futile or that the remedy would be inadequate, and because they have failed to show that Liberty waived the exhaustion requirement, the court finds that another amendment to the complaint to allege the ERISA claims would be futile. The court therefore denies plaintiffs' request to amend the complaint to allege ERISA claims against Liberty. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) (district court may withhold leave to amend based upon "futility of the amendment.")
In light of the court's rulings in this order, the court finds as follows:
(1) Liberty's motion in regard to Stoup's state statutory and common law claims (Counts II, III, IV, VI, VII, VIII, IX and X) should be granted and Stoup's statutory and common law claims against Liberty are dismissed without prejudice as preempted by ERISA. As leave to amend to add ERISA claims has been denied, Stoup has no pending claims against Liberty and Stoup is no longer a party to this action.
(2) Liberty's motion in regard to Chelsea Carter's claims (Counts I, VII, IX and X) should be granted. Chelsea Carter's federal statutory claim against Liberty for violation of the Social Security Act, 42 U.S.C. § 407 (Count I), is dismissed under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Chelsea Carter's state statutory and common law claims against Liberty for violation of Massachusetts Unfair Trade Practices Act, Mass. Gen. Laws Ch. 93A § 2, unjust enrichment, and conversion (Counts VII, IX and X) are dismissed as preempted by ERISA.
(3) IBI's motion in regard to Chelsea Carter's federal statutory claim for violation of the Social Security Act, 42 U.S.C. § 407 (Count XIX) should be granted. Chelsea Carter's claim against IBI is dismissed under Rule 12(b)(6) for failure to state a claim upon which relief can be granted.
(4) As Chelsea Carter has no pending claims against Liberty and no pending claim against IBI, Chelsea Carter is no longer a party to this action.
(5) Liberty's motion in regard to Carter's claims (Counts I, III, IV, V, VI, VII, VIII, IX and X) should be granted. Carter's federal statutory claim against Liberty for violation of the Social Security Act, 42 U.S.C. § 407 (Count I) is dismissed under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Carter's state statutory and common law claims against Liberty (Counts III, IV, V, VI, VII, IX and X) are dismissed without prejudice as preempted by ERISA. As leave to amend to add ERISA claims has been denied, Carter has no pending claims against Liberty.
(6) IBI's motion in regard to Carter's claims (Counts XIX-XXV) should be granted in part and denied in part. Carter's federal statutory claim against IBI for violation of the Social Security Act, 42 U.S.C. § 407 (Count XIX) is dismissed under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Carter's fraud and deceit claims against IBI (Counts XX and XXI) are dismissed without prejudice under Rule 9(b) with
Carter's breach of fiduciary duty claim and negligence claims (Counts XXIII and XXIV), and Carter's conspiracy claim (Count XXII) to the extent it is based upon the unlawful acts of IBI, remain pending.
(7) Liberty's motion in regard to Fortelney's claims (Counts I, III, IV, V, VI, VII, VIII, IX and X) should be granted. Fortelney's federal statutory claim against Liberty for violation of the Social Security Act, 42 U.S.C. § 407 (Count I) is dismissed under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Fortelney's state statutory and common law claims against Liberty (Counts III, IV, V, VI, VII, IX and X) are dismissed without prejudice as preempted by ERISA. As leave to amend to add ERISA claims has been denied, Fortelney has no pending claims against Liberty.
(8) The Bassett defendants' motion in regard to Fortelney's claims (Counts XXVIII) should be granted in part and denied in part. Fortelney's federal statutory claim against the Bassett defendants for violation of the Social Security Act, 42 U.S.C. § 407 (Count XI) is dismissed under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Fortelney's fraud and deceit claims against the Bassett defendants (Counts XII and XIII) are dismissed without prejudice under Rule 9(b) with leave to amend to state the claims with particularity. Fortelney's conspiracy claim (Count XIV) is dismissed under Rule 12(b)(6) for failure to state a claim upon which relief can be granted to the extent it is based upon a violation of § 407(a) and is dismissed as preempted by ERISA to the extent it is based upon unlawful acts of Liberty. Fortelney's conversion claim (Count XVIII) is dismissed under Rule 12(b)(6) to the extent it is based upon a violation of § 407(a) and is dismissed as preempted by ERISA to the extent it is based upon funds being sent to the Bassett defendants to assist Fortelney in meeting the alleged overpayment obligation under the LTD policy and the Social Security Reimbursement Agreement.
Fortelney's breach of contract, breach of fiduciary duty and negligence claims (Counts XV, XVI and XVII) and Fortelney's conspiracy claim (Count XIV) to the extent it is based upon the unlawful acts of the Bassett defendants remain pending.
As stated, the Amended Complaint includes class action allegations against defendants, including Liberty. No class certification motion has been filed and thus no class or subclass has been certified. Despite this fact, the court may and has proceeded with ruling on Liberty's motion to dismiss. See, Manual for Complex Litigation (Fourth) § 21.133 ("The court may rule on motions pursuant to Rule 12, Rule 56, or other threshold issues before deciding on certification").
Based upon the foregoing,
Defendant Liberty Life Assurance Company of Boston's Motion to Dismiss Plaintiffs' First Amended Class Action Complaint (doc. no. 54) is
Defendants Bassett Law Firm LLC, Greta Bassett, and John R. Nelson's Motion to Dismiss Plaintiffs' First Amended Complaint (doc. no. 56) and Defendant Integrated Benefits, Inc.'s Motion to Dismiss Plaintiffs' First Amended Class Action Complaint (doc. no. 74) are
In light of the court's ruling in this order, plaintiffs Brandon Stoup and Chelsea Carter have no pending claims and they are no longer parties to this action.
Plaintiffs, Larry Fortelney and David Carter, are granted leave to file a Second Amended Complaint stating with particularity their fraud and deceit claims within 20 days from the date of this order. Failure to comply may result in dismissal of the fraud and deceit claims with prejudice and this action shall proceed only as to the claims of plaintiff, Larry Fortelney, individually and on behalf of all others similarly situated, against defendants, Bassett Law Firm LLC, Greta Bassett, and John R. Nelson, for breach of contract, breach of fiduciary duty and negligence and conspiracy and as to the claims of plaintiff, David Carter, individually and on behalf of all others similarly situated, against defendant, Integrated Benefits, Inc., for breach of fiduciary duty, negligence and conspiracy.
42 U.S.C. § 407(a).
29 U.S.C. § 1021(b).
85 O.S. § 48.
