Gupta v. Freixenet, USA, Inc. (908 F. Supp. 557, 1995)

OPINION AND ORDER

NORGLE, District Judge:

This case focuses on a dispute about disability benefits. Before the court are two motions: (1) Plaintiff David Gupta’s (“Gupta”) Motion to Remand and (2) Defendant Freixenet, USA, Inc.’s (“Freixenet”) Motion to Dismiss Plaintiffs Complaint. For the following reasons, the motion to remand is denied and the motion to dismiss is granted as to Counts I and III with prejudice. Count II is dismissed without prejudice and leave to file an amended complaint on or before January 2, 1996.

I. Background

Gupta filed this action alleging a mis-calcu-lation of his long term disability benefits, a mis-determination that he was no longer entitled to benefits because of his disability, and breach of an oral employment agreement which extended his benefits. Gupta was Freixenet’s employee. In order to provide Gupta with long term disability benefits, Freixenet contracted with Upper Midwest Employers Group Trusts (“Upper Midwest”), a group insurance trust. Through Upper Midwest, Freixenet provided Gupta with benefits from Principal Mutual Life Insurance Company (“Principal”), a group insurer. Gupta became disabled in 1990 and filed a disability claim with Freixenet.

Attached to the Complaint the court finds a partial copy of the booklet given to Freixenet’s employees by Principal (“booklet”), describing Freixenet’s program. Gupta alleges that the booklet sets forth his monthly long term disability benefits as an amount equal to either 66% or 70 percent of Gupta’s monthly compensation.

Gupta claims that, when he filed the claim with Freixenet, Freixenet’s Director of Human Resources, C.M. Burns (“Burns”), told Gupta that he would receive approximately $4,400 per month (two-thirds of his $79,000 per year salary). Gupta’s claim was approved. However, Gupta states that his approval letter from Principal stated that Gupta would receive only $3,000 per month in benefits.

After paying benefits for some time, Principal requested, and Gupta underwent, a medical exam. Subsequently, in July 1993, Principal sent Gupta a letter, stating that Gupta no longer met the definition of disabled under the program and that he therefore no longer qualified for benefits. Gupta asserts that the exam was so lacking in medical inquiry that it afforded an improper basis for terminating his benefits. Gupta alleges that his medical condition had not actually changed, and that the condition worsened at the end of 1994 (approximately seventeen months after he was first denied benefits). Freixenet terminated Gupta’s employment as of February 1993. In July 1993, Principal ceased paying benefits to Gupta.

In Count I of the Complaint based on common law contract principles, Gupta requests recovery in an amount equal to the difference between the $3,000 per month paid and the $4,400 per month Gupta expected. Count II requests state law contract recovery of monthly payments from the time that Principal denied continuing coverage.

In Count III, Gupta states that, after he became disabled, he entered an oral employment contract in which Freixenet’s senior executive officer stated that Gupta would receive $50,000 per year in disability payments and fully-paid medical coverage for Gupta and his family until Gupta reached age 65, and that Gupta would also receive a bonus already due to him in an amount of approximately $20,000. In exchange for these promises, Gupta agreed to do as much work as he was able during the period when his was disabled. Gupta states that he has fully performed and that Freixenet has only partially performed by temporarily paying-disability and medical insurance. Freixenet never paid the $20,000 bonus. Gupta requests that the court award him the benefit of this oral bargain under state law. •

In its motion to dismiss, Freixenet argues that the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001-1461, preempts Gupta’s claims for benefits and that the alleged oral contract constituted an invalid oral modification of an employee welfare benefit plan. In his response to the motion to dismiss, Gupta contends that Freixenet’s program does not fall -within the reach of ERISA preemption because it included benefits supplied through Upper Midwest. Finally, in its reply, Freix-enet asserts that its use of Upper Midwest did not remove its program from ERISA’s ambit and that, as alleged by Gupta, the program is an employee welfare benefit- plan covered by ERISA. Freixenet also argues that, in consideration of the unambiguous terms of the plan documents, Gupta has failed to state a cause of action under ERISA.

II. Discussion

In deciding a motion to dismiss, the court takes all well-pleaded factual allegations as true. Johnson v. Martin, 943 F.2d 15, 16 (7th Cir.1991); Perkins v. Silverstein, 939 F.2d 463, 466 (7th Cir.1991). The court also accepts as true all reasonable inferences which may be drawn from those allegations. Triad Assoc., Inc. v. Robinson, 10 F.3d 492, 495 (7th Cir.1993). The complaint need not specify the correct legal theory nor point to the right statute. Bartholet v. Reishauer A.G., 953 F.2d 1073, 1078 (7th Cir.1992). The court must construe the pleadings liberally, and mere vagueness or lack of detail alone does not constitute sufficient grounds to dismiss a complaint. McMath v. City of Gary, Ind., 976 F.2d 1026, 1031 (7th Cir.1992).

A. Motion to Remand

Freixenet removed this case based on diversity jurisdiction and ERISA preemption. Gupta did not object to the removal within the extended time for objection set by the court. (Doe. # 14); See 28 U.S.C. § 1447(c). Gupta’s response to the removal contained simply a request for voluntary dismissal of Principal, the group insurer. In addition, Gupta concedes that this court would have diversity jurisdiction over this action under 28 U.S.C. § 1332 because there is complete diversity and an amount in controversy in excess of $50,000. Because the court finds that it also has diversity jurisdiction under ERISA, as discussed below, the motion to remand is denied.

B. ERISA Preemption

ERISA provides extensive regulation of employee benefit plans. In doing so, ERISA expressly preempts state law claims relating to such plans. 29 U.S.C. § 1144(a). Section 1144(a) states that ERISA “shall supersede any and all State laws insofar as they, may now or hereafter relate to any employee benefit plan.” Id. The Supreme Court has interpreted § 1144(a) preemption broadly, considering its language to be “deliberately expansive.” Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 46, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987); see also Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97, 103 S.Ct. 2890, 2900, 77 L.Ed.2d 490 (1983) (finding that ERISA preempts all state laws which have a “connection with or reference to” employee benefit plans). Similarly, the Seventh Circuit has determined that ERISA “displaces all state laws ‘within its sphere, even including ERISA’s substantive requirements.’” Tolle v. Carroll Touch, Inc., 977 F.2d 1129, 1136 (7th Cir.1992) (quoting Metropolitan Life Ins. Co. v. Mass, 471 U.S. 724, 739, 105 S.Ct. 2380, 2389, 85 L.Ed.2d 728 (1985)). ERISA preempts state law tort or contract claims that are essentially suits for benefits. Lister v. Stark, 890 F.2d 941 (7th Cir.1989) (ERISA preempted participant’s claims for fraud and breach of oral contract to modify pension plan).

In order to determine whether Gupta’s claims are preempted, the court must first determine whether Freixenet’s benefit program is a “welfare benefit plan” under ERISA’s definition. Courts must construe the definition of “welfare benefit plan” broadly. Brundage-Peterson v. Compcare Health Servs. Ins. Corp., 877 F.2d 509, 511 (7th Cir.1989). No single act necessarily establishes a plan. See Diak v. Dwyer, Costello & Knox, P.C., 33 F.3d 809, 811 (7th Cir.1994) (citing Donovan v. Dillingham, 688 F.2d 1367 (11th Cir.1982)). The question of whether a plan exists is one of fact which must be answered while considering all surrounding circumstances from the perspective of a reasonable person. James v. National Bus. Sys., Inc., 924 F.2d 718, 720 (7th Cir.1991).

ERISA will recognize a plan as a “welfare benefit plans” if it contains the following five elements:

(1) a plan, fund or program, (2) established or maintained, (3) by an employer or by an employee organization, or by both, (4) for the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment or vacation benefits, ... or severance benefits, (5) to participants or their beneficiaries.

Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732, 738 (7th Cir.1986). A plan exists where a reasonable person could determine the intended benefits and beneficiaries, the source of funding, and the procedures for obtaining benefits. James, 924 F.2d at 720. Delegation of plan administration does not preclude a finding that a welfare benefit plan was established or maintained by an employer. See Brundage-Peterson v. Compcare Health Serv. Ins., 877 F.2d 509 (7th Cir.1989).

In the instant case, Gupta’s own complaint alleges as follows (emphasis added):

Freixenet ... provided to its employees, including the Plaintiff Gupta, certain non-wage benefits including and specifically a long term disability benefit_

Compl. at 2 and 5;

That ... Freixenet, in order to administer and fund its long term disability program, contracted with ... Principal to provide long term group insurance as part as [sic] its planned employee program.

Compl. at 2;

Gupta filed a disability claim with ... Freixenet.

Compl. at 3 and 6;

Freixenet ... made disability payments to the Plaintiff.

Compl. at 7; and

Freixenet kept his medical insurance in full force and effect by paying the monthly premiums when due....

Compl. at 12.

The Complaint shows that the elements set forth in Ed Miniat are present here. First, Gupta’s own complaint titles Freixenet’s benefit package a “program.” Second, Gupta recognizes that Freixenet established and maintained the program. Third, Gupta states that Freixenet was his employer. Fourth, Gupta states that the program provided disability benefits, fifth, to Gupta, a covered participant.

In addition, Gupta provides other information which indicates that Freixenet established and maintained a welfare benefit plan. The Complaint states that Burns, Freixenet’s administrator, personally advised Gupta as to the amount of benefits which he was entitled to receive. The disability claim form, attached to the Complaint as Exhibit 2, states that Freixenet paid 100% of Gupta’s premium.

Furthermore, the booklet contains considerable other information indicating that Freixenet itself maintained the program. The booklet directs participants to contact the employer for information, assistance, and explanation of facts which form the basis for a request for review. Also, Freixenet had the power to terminate the plan, elect the effective date of a participant’s coverage, and consult with participants ending employment about continuing coverage. Freixenet established the terms under which its employees had the right to purchase life insurance coverage.

The booklet itself contains a section entitled “Statement of Rights,” which enumerates Gupta’s rights under ERISA. That section specifically names ERISA. This indicates that, beyond behaving like an ERISA plan, Freixenet’s program was actually designed as such.

Simply from the Complaint and its attached exhibits, a reasonable person could determine the intended benefits and beneficiaries, the source of funding, and the procedures for obtaining benefits. As such, Freix-enet’s program satisfies ERISA’s statutory definition of a welfare benefit plan. Accordingly, it is preempted by ERISA’s provisions.

Nevertheless, Gupta states that Freixenet’s plan falls under an exception to ERISA’s preemption provisions. Gupta states that the plan eludes ERISA preemption because it acts through a group insurance trust, Upper Midwest. See Taggart Corp. v. Life & Health Benefits Admin., Inc., 617 F.2d 1208 (5th Cir.1980) (group insurance trusts alone are not ERISA plans). A group insurance trust itself is not a plan because it merely conducts business like a mutual fund, collecting and forwarding payments from various small employers to larger insurers. Id.

However, the Taggart case, cited by Gupta, addressed only the issue of whether the insurance trust itself constituted a plan, rather than a subscribing employer’s comprehensive scheme of benefits. See id. Taggart does not hold that employers who subscribe to group insurance trusts cannot establish and maintain welfare benefit plans. See Ed Miniat, 805 F.2d at 739.

Although group insurance trusts, standing alone, are not plans, employers who contract with group insurance trusts may establish welfare benefit plans in which the group insurance trusts provide the benefits. Donovan v. Dillingham, 688 F.2d 1367 (11th Cir.1982). Department of Labor regulations provide that a group insurance program is not a plan where there are no employer contributions, where employees voluntarily participate, where the employer does not endorse the program but only permits the insurer to promote the program and collects premiums, and where the employer receives no consideration other than basic administration costs. 29 C.F.R. § 2510.3 — 1