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Appellate Court Rejects Majority View on ERISA Jurisdictional Issue

Appellate Court Rejects Majority View on ERISA Jurisdictional Issue

ERISA and Life Insurance News
(August 21, 2012)

The federal circuit courts of appeals generally have held that ERISA preemption is an affirmative defense that can be waived by the failure to timely assert it.

In Wolf v. Reliance Standard Life Insurance Company, 71 F.3d 444, 449 (1st Cir. 1995), for example, the First Circuit reasoned that “ERISA preemption in a benefits-due action is waivable, not jurisdictional, because it concerns the choice of substantive law but does not implicate the power of the forum to adjudicate the dispute.” See also Saks v. Franklin Covey Co., 316 F.3d 337 (2d Cir. 2003); Dueringer v. Gen. Am. Life Ins. Co., 842 F.2d 127 (5th Cir. 1988); Gilchrist v. Jim Slemons Imps., Inc., 803 F.2d 1488 (9th Cir. 1986).

And the same court later concluded that the waivability of preemption does not extend so far as to allow the parties to voluntarily “opt out” of ERISA preemption by contract. Tompkins v. United Healthcare of New England, 203 F.3d 90 (1st Cir. 2000). To do so, would “enable plan sponsors to avoid compliance with ERISA’s regulatory structure and would subject ERISA-regulated plans to a multitude of divergent state law causes of action,” the court wrote. Id. at 98.

A distinct, but related, issue was tackled by the Sixth Circuit in Daft v. Advest, Inc., 658 F.3d 583 (2011). There, the court held that “the existence of an ERISA plan is not ... a jurisdictional issue, but rather speaks to whether Plaintiffs can state a claim upon which relief may be granted.”

Jurisdictional or Element of Claim?

The plaintiffs in Daft sued their former employer and others in state court, claiming that the failure to pay pension benefits to them constituted a breach of contract and of the covenant of good faith and fair dealing. Under the terms of the plan, accrued benefits were forfeited entirely if employment was terminated, unless the termination was due to disability or occurred after age 65.

The defendants removed the case to federal court, asserting that the plan was governed by ERISA and that the plaintiffs’ state law claims were preempted.

After a voluntary stay to exhaust administrative remedies, the plaintiffs filed an amended complaint and alleged that the denial of benefits violated ERISA. (During the administrative remedies process, the plan committee had determined that the plan did not violate ERISA because it was a top-hat plan excluded from the substantive provisions of ERISA.) The district court ultimately entered judgment for the plaintiffs, concluding that the plan was not a top-hat plan and that the plan had failed to comply with ERISA’s vesting requirements.

During briefing on post-judgment remedies, the defendants asserted for the first time that the district court lacked subject matter jurisdiction on the grounds that the plan was not an “employee pension benefit plan” covered by ERISA. The district court rejected that argument and awarded a monetary remedy to the plaintiffs under 29 U.S.C. § 1132(a)(1)(B).

On appeal, the defendants repeated their argument that the plan was not an ERISA plan and that the federal court lacked jurisdiction. Based upon Supreme Court jurisprudence, the Sixth Circuit rejected the position (also assumed by the district court) that the existence of the plan was a prerequisite for jurisdiction.

Sixth Circuit Departs from Majority View

The court first recognized that the circuit courts are split on this issue.

The Third Circuit, for example, has held that establishing the existence of an ERISA plan is not a jurisdictional requirement. Henglein v. Informal Plan for Plant Shutdown Benefits for Salaried Emps., 974 F.2d 391 (3d Cir. 1992). “However,” the court noted, “most circuits have adopted the position that ‘[w]here federal subject matter jurisdiction is based on ERISA, but the evidence fails to establish the existence of an ERISA plan, the claim must be dismissed for lack of subject matter jurisdiction.” Quoting Kulinksi v. Medtronic Bio-Medicus, Inc., 21 F.3d 254, 256 (8th Cir. 1994), and also citing Tinoco v. Marine Chartering Co., 311 F.3d 617 (5th Cir. 2002); Marcella v. Capital Dist. Physicians’ Health Plan, Inc., 293 F.3d 42 (2d Cir. 2002); Delaye v. Agripac, Inc., 39 F.3d 235 (9th Cir. 1994); and UIU Severance Pay Trust Fund v. Local Union No. 18-U, United Steelworkers of Am., 998 F.2d 509 (7th Cir. 1993).

The Sixth Circuit in Daft rejected the majority position because it concluded “that recent Supreme Court precedent has abrogated the conclusion ... explicitly adopted in the majority of our sister circuits, that the existence of an ERISA plan is a prerequisite to federal subject-matter jurisdiction.”

In particular, the court pointed to the Supreme Court’s decision in Arbaugh v. Y & H Corporation, 546 U.S. 500, 504 (2006), in which the Court held that a numerical threshold in the definition of employer under Title VII “does not circumscribe federal-court jurisdiction” but “relates to the substantive adequacy of [the plaintiff’s] Title VII claim, and therefore could not be raised defensively late in the lawsuit.”

“If the Legislature clearly states that a threshold limitation on a statute’s scope shall count as jurisdictional,” the Court wrote, “then courts and litigants will be duly instructed and will not be left to wrestle with the issue.” Id. at 515-16. “But,” the Court continued, “when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character.” Id. at 516. Applying this “readily administrable bright line,” the Court concluded that “the threshold number of employees for application of Title VII is an element of a plaintiff’s claim for relief, not a jurisdictional issue.” Id.

The Court acknowledged that on the issue of subject matter jurisdiction versus “ingredient-of-claim-for relief,” the courts, including the Supreme Court itself, had been “less than meticulous.” Id. at 511. “Subject matter jurisdiction in federal-question cases is sometimes erroneously conflated with a plaintiff’s need and ability to prove the defendant bound by the federal law asserted as the predicate for relief – a merits-related determination.” Id., quoting Moore’s Federal Practice § 12.30[1], p. 12-36.1 (3d ed. 2005).

Applying Arbaugh, the Sixth Circuit noted that the relevant sections of ERISA contain “no clear statement from Congress that the existence of an ERISA plan constitutes a jurisdictional requirement.” The jurisdictional provision of Section 502(e)(1) contains no “threshold ingredient” upon which jurisdiction depends. Nor do the civil enforcement provision of 502(a)(1)(B) or the definitions of “plan” or “employee pension benefit plan” speak in “jurisdictional terms.” As a result, “in light of Arbaugh and its progeny, the existence of an ERISA plan must be considered an element of a plaintiff’s claim under Section 502(a)(1)(B), not a prerequisite for federal jurisdiction,” the court concluded in Daft.

Importantly, the court added that “[b]ecause the existence of an ERISA plan is not a jurisdictional prerequisite, federal subject-matter jurisdiction lies over Plaintiffs’ suit as long as they raise a colorable claim under ERISA.” Otherwise stated, federal jurisdiction exists over the ERISA claim unless “the claim ‘clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or ... is wholly insubstantial and frivolous.’” Quoting Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 89 (1998).

Although the court held that the plaintiffs had met that standard and that the defendants had “forfeited” by its lateness the argument that the plan was not an ERISA plan, the court nonetheless reversed the district court’s judgment, concluding that the district court should have remanded to the plan committee the issue whether the plan was a top hat plan and thus exempt from the vesting requirements of ERISA.

While the plan committee had determined that the plan was a top hat plan, and the district court had properly rejected its earlier decision on that issue, the committee had not applied the proper legal standards to make its determination. Moreover, there remained “many factual gaps in the administrative record that need filling in order to allow a reasoned determination of the top-hat issue.” Under those circumstances, the plan committee “should be given the opportunity to rectify,” the court held.

Implications for ERISA Defendants

Are there implications arising from this decision that transcend the relatively straightforward conclusion that the existence of a plan is but an element of a plaintiff’s ERISA claim? As a practical matter, under most circumstances, the defendant in a benefits action is not going to challenge a plaintiff’s contention that his or her benefits claim arises under ERISA. To the contrary, more often than not that is the position of the defendant as well. Indeed, the Daft decision for that reason represents somewhat of a role reversal.

More significantly, what are the implications, if any, of Daft with respect to removal jurisdiction where the question of ERISA governance is a close one? Resolving doubts in favor of remand, federal courts have routinely sent cases back to state court based on the absence of subject matter jurisdiction where a defendant fails to sufficiently establish the existence of a plan. And, the issue of subject matter jurisdiction is not subject to waiver or time bars.

In light of Daft, however, what is the result when a plaintiff fails to seek remand during the 30-day period following removal? Under 28 U.S.C. § 1447(c), a motion to remand “on the basis of any defect other than lack of subject matter jurisdiction” must be made within thirty days. On the other hand, if “at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” 28 U.S.C. § 1447(c).

Does a close question of ERISA governance itself allow for continued federal question jurisdiction under such circumstances? Daft, after all, started out as a removal case but involved the uncommon twist of a later challenge by the removing defendants to the court’s subject matter jurisdiction. Does the identity of the party challenging jurisdiction make a difference in the outcome?

These issues approach relatively uncharted territory in the ERISA context. But they are matters which may merit consideration in removal cases under the right circumstances.


The Sixth Circuit has departed from the majority view that the existence of a plan is jurisdictional in nature. The court premised its path, however, on the conclusion that recent Supreme Court precedent, including Arbaugh v. Y & H Corporation, effectively abrogated prior circuit decisions that the existence of an ERISA plan is a “prerequisite to federal subject-matter jurisdiction.”

That conclusion provides practitioners elsewhere the basis upon which to argue application of Daft in their own circuits where helpful. The extent to which the rationale of Daft will be helpful to defendants in maintaining federal court jurisdiction after removal remains to be developed.

Click here to view the full August 2012 Edition of the ERISA and Life Insurance News.

H. Sanders Carter
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Kenton J. Coppage
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Dorothy H. Cornwell
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