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Terry v. Pepsi Bottling Group Inc.

United States District Court, Eastern District of Kentucky, Southern Division, Pikeville

April 14, 2015



Amul R. Thapar United States District Judge

Plaintiff James M. Terry has filed a motion to remand, alleging that his complaint states a claim only under state law and does not come within the scope of the civil enforcement provision of the Employment Retirement Income Security Act (“ERISA”). See R. 10 (Motion to Remand). The Pepsi Bottling Group Inc. Long-Term Disability Plan (“PBG”)[1] disagrees, instead moving for dismissal or, in the alternative, change of venue pursuant to a forum selection clause. See R. 7 (Motion to Dismiss/Change Venue). Because the complaint states an independent claim for breach of contract, the Court does not have jurisdiction and the case must be remanded to state court.


This dispute arises out of the workers’ compensation settlement agreement between Terry and his former employer, Pepsi Bottling Group (“Pepsi”). Pepsi administered the PBG Plan. R. 1-1 ¶ 4. While working for Pepsi, Terry suffered a workplace injury. R. 10-1 at 1. In February 2011, the parties settled his ensuing workers’ compensation claim. Id. The settlement agreement contained the following promise regarding Terry’s ERISA benefits: “In further consideration of this settlement, the PBG Plan agrees that it will not seek nor be entitled to any recoupment/offset/reduction in regard to LTD benefits due to other benefits paid. Plaintiff’s eligibility for LTD benefits is not offset.” R. 10-2 at 3.[2]

Terry alleges that, in December 2011, PBG started to offset his LTD benefits by the amount he received in Social Security Disability benefits. R. 1-1 ¶ 6. Terry filed a complaint in Letcher Circuit Court for breach of contract, claiming that PBG’s actions violated the terms of the settlement agreement. Id. Importantly, Terry did not allege that PBG violated a provision of the Plan. Rather, he grounded his cause of action solely in the terms of the settlement agreement. For relief, Terry requested payment of the benefits he would have received but for the breach of contract and a declaration that the offset of benefits was a breach of contract. Id. ¶ 7. PBG timely removed the case to this Court, asserting that the Court had jurisdiction because Terry “seeks to recover Pepsi Plan benefits” under ERISA. R. 1 at 2–3 (citing ERISA § 502(a), 29 U.S.C. § 1132(a)).


A defendant may remove to federal district court only those cases “of which the district courts of the United States have original jurisdiction.” 28 U.S.C. § 1441(a). District courts have jurisdiction where the “plaintiff’s well-pleaded complaint raises issues of federal law.” Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987). These cases are known as “federal question” cases. Id. If the plaintiff’s complaint states a claim only under state law (absent the elements required for diversity jurisdiction), federal courts generally do not have federal-question jurisdiction.

Terry’s complaint alleges a breach of the settlement agreement-a purely state-law issue. See Cogent Solutions Grp., LLC v. Hyalogic, LLC, 712 F.3d 305, 309 (6th Cir. 2013) (“A settlement agreement is a type of contract and is governed ‘by reference to state substantive law governing contracts generally.’” (quoting Bamerilease Capital Corp. v. Nearburg, 958 F.2d 150, 152 (6th Cir. 1992))). No federal issue appears on the face of his complaint. As a result, the Court does not have federal-question jurisdiction. Further, PBG, which bears the burden of establishing jurisdiction, does not allege any other basis for federal-court jurisdiction, such as diversity jurisdiction. See Harnden v. Jayco, Inc., 496 F.3d 579, 581 (6th Cir. 2007). Accordingly, his case belongs in state court. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 381 (1994) (“[E]nforcement of the settlement agreement is for state courts, unless there is some independent basis for federal jurisdiction.”).

Even though the face of the complaint does not contain a federal question, PBG contends that the Court nonetheless has jurisdiction based on ERISA. ERISA, however, does not change the result. In certain cases, ERISA completely preempts a state law cause of action, which permits a federal court to exercise jurisdiction even where the federal cause of action is absent from the face of the well-pleaded complaint. Metro. Life, 481 U.S. at 62–63. Complete preemption creates federal jurisdiction because when Congress “completely pre-empt[s] a particular area[, ]” then “any civil complaint raising this select group of claims is necessarily federal in character.” Id. at 63–64.

To establish federal-court jurisdiction based on complete preemption under ERISA, the party seeking removal must demonstrate that the state-law claim comes “within the scope of the civil enforcement provisions of [ERISA] § 502(a).” Aetna Health Inc. v. Davila, 542 U.S. 200, 209 (2004). The relevant provision here, § 502(a)(1)(B), states that “[a] civil action may be brought . . . by a participant or beneficiary . . . to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B). A state-law claim falls “within the scope” of § 502(a)(1)(B) only if the removing party (the defendant) establishes both prongs of the following two-prong test: (1) the plaintiff “at some point in time, could have brought his claim under ERISA § 502(a)(1)(B)”; and (2) “there is no other independent legal duty that is implicated by a defendant’s actions.” Davila, 542 U.S. at 210; see also Gardner v. Heartland Indus. Partners, LP, 715 F.3d 609, 613 (6th Cir. 2013) (explaining that the test “is in the conjunctive” (quoting Marin Gen. Hosp. v Modesto & Empire Traction Co., 581 F.3d 941, 947 (9th Cir. 2009))). Because the settlement agreement between Terry and Pepsi establishes an independent legal duty, removal is not appropriate and analysis of the first prong is unnecessary.

A duty is independent from ERISA where it “is not derived from, or conditioned upon, the terms of” the ERISA plan. Gardner, 715 F.3d at 614; see Davila, 542 U.S. at 210 (holding that duty was not independent where the potential liability under state law “derives entirely from the particular rights and obligations established by the benefit plans”). Terry’s complaint alleges that PBG’s duty to not offset LTD benefits arose from the workers’ compensation settlement agreement, not from the terms of the PBG Plan. R. 1-1 at ¶6.

He is correct. Assume that the Plan provides for a payment to Terry of $1000 in LTD benefits each month and that Terry also receives $500 each month from Social Security.[3] The parties do not dispute that the terms of the Plan require the offset of LTD benefits by the Social Security Disability benefits received by the beneficiary. Applying those terms, Terry may receive only $500 each month in LTD benefits. Now, add the wrinkle of the separate promise between Terry and Pepsi: the settlement agreement states that the PBG Plan will not offset the LTD benefits. R. 10-2 at 3. What is the effect of that agreement? No party suggests that the agreement altered the terms of the Plan itself, and accordingly the Court will assume that the Plan terms remained the same. Because the Plan’s terms have not changed due to the agreement, it follows that the duty of PBG under the terms of the Plan also has not changed-to offset benefits if Terry receives other income. While the agreement does not change PBG’s duty under the Plan, it does create a separate duty under state contract law. See Kokkonen, 511 U.S. at 381.

A reasonable interpretation of the agreement, and PBG’s corresponding duty, is that PBG must independently pay Terry the amount that would otherwise have been offset pursuant to the Plan terms. Using the hypothetical figures above, PBG could meet that obligation by sending Terry a separate check each month for $500. That separate check is not required by the terms of the Plan, but rather from the terms of the settlement agreement. Thus, the agreement creates an independent legal duty divesting the Court of jurisdiction.

That intuitive result finds support in the Sixth Circuit’s decision in Gardner as well as cases outside the Sixth Circuit. The plaintiffs in Gardner, participants in their employer’s retirement plan, alleged that an investment firm’s involvement in the dissolution of that retirement plan violated a state-law duty to not interfere with the plan. The court held that remand was appropriate because the duty “arises under [state] tort law, not the terms of the [ERISA plan] itself.” Gardner, 715 F.3d at 614. Even though the terms of the ERISA plan “would likely be ...

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