April 11, 2021

Volume XI, Number 101

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April 08, 2021

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D.N.J. Rejects Plaintiff’s Fee Request In Connection With State Court Remand Of Action Removed Under ERISA, Scaling Back Earlier Charge That Defendant’s Removal Was Nonsensical

In 2010, Chief Justice John Roberts observed that that ERISA is “an enormously complex and detailed statute.” Conkright v. Frommert, 559 U.S. 506, 509 (2010).

Some things don’t change. A recent decision out of the District Court of New Jersey exemplifies how even the most seemingly mundane procedural act — removal — implicates procedural and legal nuances with which courts continue to grapple.

In Newton v. South Jersey Paper Products Company, Inc., No. 1:19-cv-17289-NLH-KMW, 2020 WL 7396258 (D.N.J. Dec. 17, 2020) (“Newtown II”), the District Court rejected a plaintiff’s bid for attorney’s fees incurred in seeking and obtaining a remand of the plaintiff’s claims — which the defendant had removed to federal court on the basis of ERISA preemption — back to New Jersey state court. In rendering its decision to deny the plaintiff’s fee motion, the District Court recognized “the unique complexity of ERISA preemption issues and the resulting reluctance of courts in this district to impose attorneys’ fees on defendants who have made failed preemption arguments…” Newton II, 2020 WL 7396258, at *4.

In her complaint, the plaintiff alleged that her employer, the defendant, had terminated her long term disability benefits plan without informing her, but nevertheless continued to take weekly paycheck deductions towards plan premiums for nearly two years post-termination. According to the complaint, the plaintiff first learned of the plan’s termination when she applied for long term disability benefits under the plan, and was advised by her employer that no disability coverage was in effect. The plaintiff alleged that she was initially approved for New Jersey’s Temporary Disability Insurance, and that she was subsequently deemed permanently disabled by the Social Security Administration, but that she was deprived of the opportunity to seek and obtain long term disability insurance as a result of her employer failing to notify her of its cancellation or termination of the employer-sponsored plan towards which it continued to deduct her pay. Plaintiff sued her employer in New Jersey state court and claimed that she was entitled to relief under four state common law theories: (1) conversion of plaintiff’s withheld pay; (2) breach of contract for terminating promised insurance coverage for which the employer continued to charge the plaintiff; (3) fraudulent concealment of the fact that long term disability coverage had terminated; and (4) breach of the employer’s fiduciary duty, in its alleged capacity as policyholder and administrator of the long term disability plan, to the plaintiff.

The employer removed the complaint and its four common law claims to federal court on the grounds that they related to an employee benefit plan, thus subjecting them to complete ERISA preemption under 29 U.S.C. § 1144(a). The employer then moved for dismissal of the claims on the basis of such preemption.

The plaintiff opposed the employer’s motion to dismiss, and separately filed a motion for remand on the basis that her claims were not covered by ERISA. Addressing the motion for remand, the District Court concluded that the plaintiff was not a “participant or beneficiary” within the meaning of ERISA, and therefore was “not the type of party that can bring a claim under ERISA” and its civil enforcement procedures set forth in  29 U.S.C. § 1132. Newton v. South Jersey Paper Products Company, Inc., No. 1:19-cv-17289-NLH-KMW, 2020 WL 2059954, at *2 (D.N.J. Apr. 29, 2020) (“Newton I”) (citing Pascack Valley Hosp. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393, 400 (3d Cir. 2004)). In so holding, the Court gave little attention to the employer’s arguments that claimed damages would necessarily be calculated by reference to the former plan’s terms, and that the plaintiff’s breach of fiduciary claim hinged upon an alleged duty imposed upon plan administrators under ERISA.  Thus, the District Court remanded the action to state court, explaining:  “[i]t is simply nonsensical for Defendant to assert that Plaintiff seeks to enforce her rights under a policy that does exist.” Newton I, at *3.

The plaintiff pounced on the Newton I Court’s characterization of the employer’s arguments as “nonsensical,” and moved for an award of attorney’s fees under 28 U.S.C. § 1447(c). Under this provision, “[t]he standard for awarding fees should turn on the reasonableness of the removal. Absent unusual circumstances, courts may award attorney’s fees under § 1447(c) only where the removing party lacked an objectively reasonable basis for seeking removal. Conversely, when an objectively reasonable basis exists, fees should be denied.” Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005).

The employer argued that its removal of the plaintiff’s claims was not objectively unreasonable, citing numerous recent decisions in which the District Court had denied fees after remanding for lack of complete ERISA preemption, as well as the Third Circuit’s own concession that “[i]t is no secret to judges and lawyers that the courts have struggled with the scope of ERISA preemption.” Kollman v. Hewitt Assocs., LLC, 487 F.3d 139, 147 (3d Cir. 2007). The employer also reminded the Court that, during argument on the motion for remand, the Newton I Court conceded that the applicable case law was “kind of all over the place” and that “[t]here are some cases both for and against it.”

In denying the plaintiff’s motion for attorney’s fees, the Newton II Court acknowledged that the Third Circuit has articulated that ERISA preemption may apply when “the calculation of damages would involve construction of ERISA plans,” an argument that the employer had originally asserted in its opposition to plaintiff’s motion for remand. Newtown II, at *3-4 (citing 1975 Salaried Ret. Plan for Eligible Employees of Crucible, Inc. v. Nobers, 968 F.2d 401, 406 (3d Cir. 1992)). Though the Third Circuit and courts within it have more recently questioned the scope and application of this language, the Newton II Court recognized that Nobers has not been overturned. The Newtown II Court further noted the “lack of a direct holding” on the objective reasonableness of removal based on ERISA preemption “by the Third Circuit and the more expansive language of some other cases in this Circuit,” all of which rendered it “plausible that [Defendant’s] position was asserted in the belief that it had current legal support, or as part of a good faith argument for an extension of existing law.” Id.

“Given the unique complexity of ERISA preemption issues and the resulting reluctance of courts in this district to impose attorneys’ fees on defendants who have made failed preemption arguments,” the District Court concluded, “the Court will exercise its discretion and not impose attorneys’ fees and costs on Defendant.” Id. at *4.

Newton I and Newton II show that courts continue to grapple with the scope and nuances of ERISA, and that what might harshly be criticized as “nonsensical” on one day and in one context might be construed “as part of a good faith argument for an extension of existing law” on another day, in a related context.

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Copyright © 2021 Robinson & Cole LLP. All rights reserved.National Law Review, Volume XI, Number 4
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About this Author

Gregory J. Bennici Employment Attorney Robinson Cole
Associate

Greg Bennici is a member of the firm's Managed Care + Employee Benefit Litigation Group. He frequently handles cases involving employee and group benefits disputes, property damage subrogation, and complex commercial disputes. 

Employee and Group Benefits Litigation

Greg handles disputes related to group welfare benefits, the Employee Retirement Income Security Act (ERISA), health insurance, disability insurance, and life insurance coverage. He regularly defends claims brought against plan fiduciaries, and represents plan administrators and insurers in...

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