Taylor Chevrolet Inc. v. Medical Mutual Services LLC

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 08a0777n.06
Filed: December 22, 2008

No. 07-4505

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

TAYLOR CHEVROLET INC, aka Taylor Team of )
Dealerships, dba Taylor Dealerships, ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
Plaintiff-Appellee, ) COURT FOR THE
) SOUTHERN DISTRICT OF
v. ) OHIO
)
MEDICAL MUTUAL SERVICES LLC, ) OPINION
)
Defendant-Appellant. )

BEFORE: ROGERS, SUTTON, and McKEAGUE, Circuit Judges.

McKEAGUE, Circuit Judge. Plaintiff Taylor Chevrolet, Inc. (“Taylor”) sued Defendant

Medical Mutual Services LLC (“Medical Mutual”) in Ohio state court, alleging breach of contract,

breach of fiduciary duty, and other state law claims. Medical Mutual removed the suit to federal

district court, contending that Taylor’s claims were completely preempted by the Employee

Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et. seq. The district court

granted Taylor’s motion to remand to state court, as well as Taylor’s subsequent request, pursuant

to 28 U.S.C. § 1447(c), for attorneys’ fees and costs incurred as a result of the removal. On appeal,

Medical Mutual challenges the award of attorneys’ fees and costs to Taylor. Because the district

court did not abuse its discretion in this matter, we AFFIRM.

I
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Taylor Chevrolet Inc. v. Medical Mutual Services LLC

In March 2003, Taylor created a self-funded health benefit plan (the “Plan”) for the purpose

of providing medical benefits to its eligible employees and their dependents. The parties do not

dispute that the Plan was an employee welfare benefit plan established and maintained in accordance

with ERISA.

From March 2003 to 2005, Taylor and Medical Mutual entered into a series of administrative

services agreements. Under the terms of these agreements, Taylor was obligated to establish the

Plan, prepare a governing Plan document, and prepare and distribute a summary Plan description.

Taylor was also financially liable for claims incurred by the Plan’s participants and beneficiaries, or,

as the Plan defined them, “Covered Persons.” Medical Mutual was to act as third-party administrator

of the Plan. Among other things, Medical Mutual was required to receive and process claims for

benefits and to disburse payments under the Plan. Upon payment of a claim, Medical Mutual would

send Taylor a weekly invoice of the amounts expended. The agreements required Taylor to pay the

invoiced amounts on the next business day following the date of the invoice.

Taylor was also party to an excess loss reinsurance contract with American National

Insurance Company (“American National”) to protect itself from catastrophic financial loss.

Although Taylor was still required to reimburse Medical Mutual for the entire amount of approved

medical claims, Taylor was entitled to reimbursement from American National for any claims Taylor

paid on behalf of a single Covered Person in excess of $50,000. To ensure that Taylor was

reimbursed under its contract with American National, Taylor claims Medical Mutual was required

to timely notify American National of any excess amount.

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Taylor Chevrolet Inc. v. Medical Mutual Services LLC

On December 12, 2006, Taylor sued Medical Mutual in the Court of Common Pleas of

Fairfield County, Ohio, alleging breach of contract, breach of fiduciary duty, negligence, unjust

enrichment, fraud, and bad faith under Ohio law. Taylor’s claims were based on two factual

allegations. First, Taylor contended that Medical Mutual breached its duty to timely notify American

National that Taylor had incurred costs of claims in excess of the $50,000 individual excess amount

for at least four Covered Persons. Due to this alleged failure to notify, Taylor claimed American

National had refused to pay Taylor $40,347.70 in reimbursement benefits that would have been

covered by the reinsurance contract. Second, Taylor claimed that it had inadvertently made a double

payment on a $50,031.13 invoice from Medical Mutual. Medical Mutual apparently applied the

initial payment to the amount due and retained the second (double) payment in an account. It used

the funds from this account to pay claims that became due under Taylor’s former self-insured plan.1

Taylor claimed that Medical Mutual breached its duty to inform Taylor of this overpayment for

approximately one year, and accordingly owed Taylor $2,587.91 in interest.

On January 25, 2007, Medical Mutual removed the case to the United States District Court

for the Southern District of Ohio. As the basis for removal, Medical Mutual claimed that the federal

district court had subject matter jurisdiction under 28 U.S.C. § 1331 because ERISA completely

preempted Taylor’s state law claims. Taylor filed a motion to remand the case to state court, which

the district court granted. The district court reasoned that ERISA did not completely preempt

1
Effective March 1, 2005, Medical Mutual began providing a fully-insured health benefit plan
to Taylor and its eligible employees and their eligible dependents.

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Taylor Chevrolet Inc. v. Medical Mutual Services LLC

Taylor’s state law claims, because Taylor would have lacked standing to sue under ERISA’s civil

enforcement provision, 29 U.S.C. § 1132(a).

After its motion to remand was granted, Taylor filed a motion seeking attorneys’ fees and

costs under 28 U.S.C. § 1447(c). The district court granted that motion as well, concluding that

Medical Mutual had no objectively reasonable basis for removal. The parties stipulated to the

amount of attorneys’ fees Taylor had incurred, and the district court entered a final order awarding

the fees. Medical Mutual timely appealed.

II

Generally, a defendant may remove a civil case commenced in state court to federal district

court if the case could have been brought there originally. 28 U.S.C. §1441(a). But “[i]f 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). “An order remanding the case may require payment of just

costs and any actual expenses, including attorney fees, incurred as a result of the removal.” Id.

Although “[a]n order remanding a case to the State court from which it was removed is not

reviewable on appeal or otherwise,” 28 U.S.C. § 1447(d), we have jurisdiction to review a district

court’s decision whether to award attorneys’ fees incurred as a result of improper removal under §

1447(c), Stallworth v. Greater Cleveland Regional Transit Auth., 105 F.3d 252, 255 (6th Cir. 1997).

We review a district court’s decision to award attorneys’ fees under § 1447(c) for abuse of

discretion. Bartholomew v. Town of Collierville, 409 F.3d 684, 686 (6th Cir. 2005). A district court

abuses its discretion when it relies on clearly erroneous findings of fact, improperly applies the law,

or uses an erroneous legal standard. Id.

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Taylor Chevrolet Inc. v. Medical Mutual Services LLC

The Supreme Court recently clarified the legal standard governing a district court’s discretion

in granting attorneys’ fees under § 1447(c). “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.” Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005). “Conversely,

when an objectively reasonable basis exists, fees should be denied.” Id.; see also Bartholomew, 409

F.3d at 687 (“[A]n award of costs, including attorney fees, is inappropriate where the defendant’s

attempt to remove the action was ‘fairly supportable,’ or where there has not been at least some

finding of fault with the defendant’s decision to remove.”).

III

Applying the standard set forth in Martin, we hold that the district court did not abuse its

discretion in awarding attorneys’ fees to Taylor under § 1447(c). A defendant may remove a state

court action under §1441(a) only if the action “originally could have been filed in federal court.”

Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987). Although a civil action “arising under the

Constitution, laws, or treaties of the United States” may be brought originally in federal court, 28

U.S.C. § 1331, Medical Mutual lacked an objectively reasonable basis for believing that Taylor’s

entirely state law complaint raised a federal question.2

A. Federal Question Jurisdiction and ERISA Complete Preemption

2
The parties do not dispute that diversity of citizenship under 28 U.S.C. § 1332 would not
have been an objectively reasonable basis for removal, as both Taylor and Medical Mutual are
citizens of Ohio for diversity jurisdiction purposes.

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Taylor Chevrolet Inc. v. Medical Mutual Services LLC

Generally, a cause of action arises under federal law only when it appears on the face of the

plaintiff’s well-pleaded complaint. Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987); see also

Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 10-11 (1983); Gentek Bldg.

Prods., Inc. v. Steel Peel Litig. Trust, 491 F.3d 320, 325 (6th Cir. 2007). “If the complaint relies

only on state law, the district court generally lacks subject matter jurisdiction, and the action is not

removable.” Gentek, 491 F.3d at 325. A claim in which a federal question arises only as a defense

to a state law action does not “arise under” federal law. See Franchise Tax Bd., 463 U.S. at 10-11.

Accordingly, because a defendant must ordinarily raise federal conflict preemption as a defense to

the allegations in a plaintiff’s complaint, it usually cannot serve as a basis for removal to federal

court. Caterpillar, 482 U.S. at 392-93 (1987); Metro. Life, 481 U.S. at 63.

The Supreme Court has developed two limited exceptions to the well-pleaded complaint rule:

the complete preemption doctrine and the substantial federal question doctrine.3 Complete

preemption arises where Congress has so completely preempted a particular area “that any civil

complaint raising this select group of claims is necessarily federal in character.” Metro. Life, 481

U.S. at 63-64. In such cases, the plaintiff has essentially “brought a mislabeled federal claim.” King

v. Marriott Int’l, Inc., 337 F.3d 421, 425 (4th Cir. 2003). The state law claims are converted into

federal claims and, as such, may be removed to federal court. Gentek, 491 F.3d at 325.

3
The substantial federal question doctrine applies “where the vindication of a right under state
law necessarily turn[s] on some construction of federal law.” Franchise Tax Bd., 463 U.S. at 9; see
also Mikulski v. Centerior Energy Corp., 501 F.3d 555, 560 (6th Cir. 2007) (en banc). Medical
Mutual did not assert the substantial federal question doctrine as a basis for removal, and does not
argue on appeal that it applies.

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Taylor Chevrolet Inc. v. Medical Mutual Services LLC

ERISA is one of the few statutes where both conflict and complete preemption may arise.4

ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee

benefit plan.”5 29 U.S.C. § 1144(a). But, as discussed above, the mere fact that a party may raise

ERISA conflict preemption under § 1144(a) as a defense does not confer federal jurisdiction or

authorize removal to federal court. Warner v. Ford Motor Co., 46 F.3d 531, 534-35 (6th Cir. 1995)

(en banc) (noting that no removal jurisdiction exists under § 1144). A state law claim is not

completely preempted or removable unless it falls within the scope of ERISA’s civil enforcement

provision—29 U.S.C. § 1132(a). See Metro. Life, 481 U.S. at 67 (holding that ERISA completely

preempted a state cause of action within the scope of § 1132(a)(1)(B)); Aetna Health Inc. v. Davila,

542 U.S. 200, 209 (2004) (noting that causes of action within the scope of § 1132(a) are removable);

Thurman v. Pfizer, Inc., 484 F.3d 855, 860 (6th Cir. 2007) (“Actions that could have been brought

under § 1132 . . . are completely preempted by [ERISA].”); Smith v. Provident Bank, 170 F.3d 609,

613 (6th Cir. 1999) (holding that “[a] claim for breach of fiduciary duty against the fiduciary of an

ERISA plan” under § 1132(a)(2) may be removed to federal court); see also Sonoco Prods. Co. v.

Physicians Health Plan, Inc., 338 F.3d 366, 371 (4th Cir. 2003); Toumajian v. Frailey, 135 F.3d

4
In addition to ERISA, the Supreme Court has found that only two other statutes completely
preempt state law: section 301 of the Labor Management Relations Act of 1947, Avco Corp. v. Aero
Lodge No. 735, Int’l Ass’n of Machinists, 390 U.S. 557, 560 (1968), and sections 85 and 86 of the
National Bank Act, Beneficial Nat’l Bank v. Anderson, 539 U.S. 1, 10-11 (2003).
5
The Supreme Court recently narrowed the preemptive scope of the “relate to” language of
§ 1144(a) in N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S.
655, 668 (1995).

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Taylor Chevrolet Inc. v. Medical Mutual Services LLC

648, 654 (9th Cir. 1998); Rice v. Panchal, 65 F.3d 637, 639 (7th Cir. 1995); Dukes v. U.S.

Healthcare, Inc., 57 F.3d 350, 354 (3d Cir. 1995).

B. Reasonableness of Removal on the Basis of Complete Preemption

To have an objectively reasonable basis for removal to federal court, Medical Mutual must

have reasonably concluded that Taylor’s claims fell within the scope of ERISA’s civil enforcement

provision, 29 U.S.C. § 1132(a). Such a conclusion obviously could not have been based upon any

explicit reference to ERISA—on its face, Taylor’s complaint referred only to violations of state law.

Instead, Medical Mutual’s argument centers on Taylor’s state law cause of action for breach of

fiduciary duty, in which Taylor alleged the following:

Given the relationship between the parties in this matter, Defendant Medical Mutual
owed Plaintiff Taylor certain fiduciary duties arising under state law. The acts and
omissions of the Defendant constitute breach of those fiduciary duties for which
Defendant has liability. As a direct and proximate result of the breach of fiduciary
duties, Defendant [sic] has been damaged, as set forth above.

Compl. ¶ 13, J.A. at 15. Medical Mutual argues that this state law fiduciary duty claim arose under

§ 1132(a)(2), the subsection of ERISA’s civil enforcement provision that authorizes “the Secretary”

or “a participant, beneficiary or fiduciary” to sue another fiduciary for breach of fiduciary duty.6

Medical Mutual first argues that any claim by Taylor for breach of fiduciary duty must have

arisen under § 1132(a)(2) because a fiduciary duty claim brought under state law would have been

meritless. Because Medical Mutual had no fiduciary relationship with Taylor under Ohio law, it

6
Section 1132(a)(2) incorporates §1109(a), which provides that “[a]ny person who is a
fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties
imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any
losses to the plan resulting from each such breach . . . .”

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argues, it was reasonable in assuming that Taylor’s complaint asserted a fiduciary duty claim under

ERISA. But the supposed absence of such a cause of action under state law (a matter on which we

express no opinion), standing alone, was not enough to provide a reasonable basis for assuming that

the complaint stated a cause of action under ERISA. Medical Mutual needed an affirmative basis

for such a conclusion.

Ultimately, Medical Mutual lacked an objectively reasonable basis for believing that Taylor’s

cause of action fell within the scope of § 1132(a)(2) and was therefore completely preempted by

ERISA. As stated above, §1132(a)(2) authorizes “the Secretary” or a “participant, beneficiary or

fiduciary” to sue another fiduciary for breach of fiduciary duty. The parties do not dispute that

Taylor, as employer and Plan sponsor, could not have reasonably been characterized as a

“participant” or “beneficiary” within the meaning of ERISA.7 See COB Clearinghouse Corp. v.

Aetna U.S. Healthcare, Inc., 362 F.3d 877, 881 n.5 (6th Cir. 2004); Sonoco, 338 F.3d at 372 n.8

(noting that “an employer can neither be a participant nor a beneficiary”). And clearly, Taylor did

not bring its claim as the Secretary of Labor. Thus, the only capacity in which Taylor could have had

standing to sue was in its capacity as a “fiduciary” of the Plan.

A person is a fiduciary with respect to an ERISA plan to the extent that “(i) he exercises any

discretionary authority or discretionary control respecting management of such plan or exercises any

authority or control respecting management or disposition of its assets, . . . or (iii) he has any

7
A “participant” is “any employee . . . who is or may become eligible to receive a benefit of
any type from an employee benefit plan.” 29 U.S.C. § 1002(7). A “beneficiary” is “a person
designated by a participant, or by the terms of an employee benefit plan, who is or may become
entitled to a benefit thereunder.” 29 U.S.C. § 1002(8).
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Taylor Chevrolet Inc. v. Medical Mutual Services LLC

discretionary authority or discretionary responsibility in the administration of such plan.” 29 U.S.C.

§ 1002(21)(A). “[O]nly discretionary acts of plan management or administration, or those acts

designed to carry out the very purposes of the plan,” are acts of a fiduciary capacity. Hunter v.

Caliber Sys., Inc., 220 F.3d 702, 718 (6th Cir. 2000); see also 29 U.S.C. § 1002(21)(A). Moreover,

a party’s status as a fiduciary “is not an all or nothing concept”; a court must ask whether an entity

is a fiduciary “with respect to the particular activity in question.” Briscoe v. Fine, 444 F.3d 478, 486

(6th Cir. 2006) (quoting Moench v. Robertson, 62 F.3d 553, 561 (3d Cir. 1995)).

Here, Taylor’s complaint neither implied that Taylor was suing in its capacity as an ERISA

fiduciary nor that Medical Mutual was being sued in its capacity as such. Rather, the relationship

between Taylor and Medical Mutual was independent from any duties either party had to the Plan

or its participants and beneficiaries. Taylor’s claims related solely to Taylor’s own injuries—not any

injury to the Plan or its participants and beneficiaries—and Taylor was clearly seeking to enforce its

rights under a separate, distinct administrative services contract with Medical Mutual. See Sonoco,

338 F.3d at 373 (holding that where a plan sponsor’s claims “relate solely to its own injuries, and

not to its fiduciary responsibilities to the plan or to the plan’s participants and beneficiaries,” it is not

acting as a fiduciary under ERISA). Moreover, there was no allegation that Medical Mutual had

failed to pay benefits to any participants or beneficiaries of the Plan, or that it had paid any claims

in violation of the Plan’s terms. Thus, any failure by Medical Mutual was not a failure to properly

carry out its fiduciary duties of processing benefit claims and distributing Plan funds under the terms

of the Plan. See Geweke Ford v. St. Joseph’s Omni Preferred Care Inc., 130 F.3d 1355, 1359 (9th

Cir. 1997) (noting that third-party administrator’s “alleged failure was to file the claim with [the

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Taylor Chevrolet Inc. v. Medical Mutual Services LLC

excess liability insurer] properly and in a timely manner, it was not a failure to administer the Plan”).

Even assuming that Medical Mutual had a duty to notify American National of any excess amount

or to notify Taylor of its double payment, then, that duty could have only arisen out of the

administrative services agreements between the parties and ran only to Taylor.

Because Taylor’s claim involved neither Taylor’s nor Medical Mutual’s status as an ERISA

fiduciary, Medical Mutual could not have reasonably concluded that it fell within the scope of §

1132(a)(2).8 Accordingly, the district court did not abuse its discretion in awarding attorneys’ fees

and costs to Taylor under § 1447(c).

IV

For the foregoing reasons, we AFFIRM.

8
We briefly note that Medical Mutual could not have perceived Taylor’s claim as one brought
under any of the other subsections of ERISA’s civil enforcement provision. Only a “participant or
beneficiary” may bring a civil action under § 1132(a)(1), and, as discussed above, Medical Mutual
does not dispute that Taylor is neither a “participant” nor a “beneficiary.” Section 1132(a)(3) is also
inapplicable because Taylor did not allege that Medical Mutual had violated any provision of ERISA
or the terms of the Plan; it only alleged that Medical Mutual had violated the terms of the
administrative services agreements between the parties. See Penny/Ohlmann/Nieman, Inc. v. Miami
Valley Pension Corp., 399 F.3d 692, 701 (6th Cir. 2005) (noting that employer’s breach of contract
claim against third-party service provider was not preempted by ERISA in part because there was
“no allegation that any of the plan’s terms have been breached”). Finally, Medical Mutual does not
argue that Taylor’s claim fell within the scope of the remaining subsections, §§ 1132(a)(4)–(a)(10).
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