Machlup v. TIAA-CREF Individual & Inst. Serv. , 2013 Ohio 2704 ( 2013 )

[Cite as Machlup v. TIAA-CREF Individual & Inst. Serv., 2013-Ohio-2704.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 99298
MARILYN MACHLUP
PLAINTIFF-APPELLANT
vs.
TIAA-CREF INDIV. & INST. SERV., ET AL.
DEFENDANTS-APPELLEES
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-782861
BEFORE: Blackmon, J., Celebrezze, P.J., and McCormack, J.
RELEASED AND JOURNALIZED: June 27, 2013
ATTORNEYS FOR APPELLANT
Richard N. Selby, II
Angela D. Krupar
Dworken & Bernstein Co., L.P.A.
60 South Park Place
Painesville, Ohio 44077
ATTORNEYS FOR APPELLEES
Matthew D. Golish
Vincent T. Norwillo
Gonzales Saggio & Harlan, L.L.P.
526 Superior Avenue
Suite 620
Cleveland, Ohio 44114
PATRICIA ANN BLACKMON, J.:
{¶1} In this accelerated appeal, appellant Marilyn Machlup (“Machlup”) appeals
the trial court’s dismissal of her complaint for lack of jurisdiction and assigns the
following error for our review:
The trial court erred in determining that plaintiff/ appellant’s
complaint was preempted by the Federal Employee Retirement Income
Security Act and improperly dismissed plaintiff/appellant’s complaint.
{¶2} Having reviewed the record and pertinent law, we affirm the trial court’s
decision. The apposite facts follow.
Facts
{¶3} Machlup is the widow of Professor Stefan Machlup, a former physics
professor at Case Western Reserve University (“University”). Professor Machlup was
employed at the University for 44 years and participated in the University’s
ERISA-governed Section 403(b) retirement plan. Retirement annuity contracts issued by
TIAA-CREF (Teachers Insurance & Annuity Association of America and College
Retirement Equities Fund) fund the plan. When he enrolled in the plan, he was issued
deferred annuity contracts. The annuities provided for retirement and post-retirement
death benefits on a tax deferred basis until the account holders attain the age where the
Internal Revenue Service mandates they take the required distributions to fulfill tax law
obligations.
{¶4} On August 24, 2002, Professor Machlup was 70 and one-half years old,
thus he requested his retirement benefits be converted into minimum distribution income
streams (“MDO”) based on mandatory tax obligations. At this time, Professor Machlup
also exercised his contractual option to provide death benefits for each contract,
instructing that his wife receive one-half of any death benefits available upon his passing
and that his two sons divide the other half. He restricted each beneficiary to lifetime
monthly annuity payouts.
{¶5} Professor Machlup died on August 16, 2008. TIAA-CREF’s Release and
Indemnification letter proposed a valuation of Machlup’s property as of August 16, 2008,
of $1,033, 313.18. The beneficiaries were provided applications to separate the
accumulated death benefits into self-directed individual accounts and initiate their
lifetime monthly annuity payouts as Professor Machlup had directed. Machlup accepted
the distribution; however, her sons rejected the distribution arrangement, questioning both
the value of the accumulated death benefits as well as their father’s restriction that
benefits be paid monthly for life.1 Although Machlup had been receiving the
annuity payments, on May 17, 2012, she filed a complaint in the common pleas court
alleging conversion, breach of fiduciary duty, breach of duty for accounting, breach of
duty to act in good faith and fair dealing, unjust enrichment, fraud in the inducement, and
breach of contract. Underlying these claims are her contentions that TIAA-CREF failed
to pay her the full value of her husband’s pension and mismanaged the fund.
1
The sons have a separate complaint pending in the court of common pleas.
{¶6} TIAA-CREF filed a motion to dismiss pursuant to Civ.R. 12(B)(1) and (6),
claiming the action was preempted by ERISA. The trial court granted the motion to
dismiss, stating in pertinent part:
To survive preemption a state claim must only relate to an employer
benefit plan “tangentially.” Halley v. The Ohio Co., 107 Ohio App. 3d
518 (1995). However, when a state claim is based on a promise
affecting the amount or calculation of benefits, even if the promise is
made in writing separate from the pension plan, the claim “relates to”
the pension plan and is preempted. Great Lakes Bancorp v. Holbrook,
1996 U.S. Dist. LEXIS 4668. The court finds that in the instant
matter, plaintiff’s claims “relate to” an employer benefit plan and are
therefore preempted by ERISA. Therefore, plaintiff’s complaint is
dismissed with prejudice. There is no just case for delay. Journal Entry,
Nov. 30, 2012.
Jurisdiction
{¶7} Machlup argues in her sole assigned error that the trial court erred by
dismissing her claims for lack of jurisdiction. She contends that her state claims were
not preempted by ERISA.
{¶8} In order to prevail on a motion to dismiss pursuant to Civ.R. 12(B)(6), it
must appear “beyond doubt that the plaintiff can prove no set of facts in support of his
claim which would entitle him to relief.” Byrd v. Faber, 57 Ohio St. 3d 56, 60, 565
N.E.2d 584 (1991). A motion to dismiss for failure to state a claim upon which relief
can be granted is procedural and tests the sufficiency of the complaint. State ex rel.
Hanson v. Guernsey Cty. Bd. of Commrs., 65 Ohio St. 3d 545, 1992-Ohio-73, 605 N.E.2d
378. A similar standard applies to Civ.R. 12(B)(1) motions: the court must dismiss if the
complaint fails to allege any cause of action cognizable in the forum. Blankenship v.
Cincinnati Milacron Chems., Inc., 69 Ohio St. 2d 608, 611, 433 N.E.2d 572 (1982). An
appellate court reviews rulings on both types of motions under a de novo standard of
review. Perrysburg Twp. v. Rossford, 103 Ohio St. 3d 79, 2004-Ohio-4362, 814 N.E.2d
44, ¶ 5 (reviewing a Civ.R. 12(B)(6) motion under a de novo standard); Revocable Living
Trust of Stewart I. Mandel v. Lake Erie Util. Co., 8th Dist. No. 97859, 2012-Ohio-5718, ¶
17 (holding that an appellate court reviews a Civ.R. 12(B)(1) motion de novo).
{¶9} Additionally, in considering a motion to dismiss pursuant to Civ.R.
12(B)(1), the court is not confined to the allegations of the complaint, and may consider
material pertinent to the inquiry without converting the motion into one for summary
judgment. Southgate Dev. Corp. v. Columbia Gas Transm. Corp., 48 Ohio St. 2d 211,
358 N.E.2d 526 (1976), at paragraph one of the syllabus. At oral argument, appellant’s
counsel argued that the court erred by considering evidence outside the complaint because
preemption does not involve subject matter jurisdiction. However, this court has
previously held that if a claim is federally preempted, the common pleas court does not
have subject matter jurisdiction over the matter. Chenevey v. Greater Cleveland
Regional Transit Auth., 8th Dist. No. 99063, 2013-Ohio-1902; Cannon v. CSX Transp.,
Inc., 8th Dist. No. 84373, 2005-Ohio-99; Kulak v. Mail-Well Envelope Co., 8th Dist. No.
76974, 2000 Ohio App. LEXIS 3949 (Aug. 31, 2000). Thus, the trial court did not err by
considering evidence attached to TIAA-CREF’s motion to dismiss.
{¶10} The federal Employment Retirement Income and Securities Act (“ERISA”),
29 U.S.C. 1001 et seq., is a comprehensive federal law governing employee benefits. In
pertinent part, ERISA defines an “employee benefit welfare plan” as any plan established
or maintained by an employer for the purpose of providing for its participants or their
beneficiaries, through the purchase of insurance or otherwise, benefits in the event of
death. 29 U.S.C. 1002(1).
{¶11} ERISA’s provisions “supersede any and all State laws insofar as they may
now or hereafter relate to any employee benefit plan [covered by ERISA].” 29 U.S.C.
1144(a). “ERISA preempts state law and state law claims that ‘relate to’ any employee
benefit plan as that term is defined therein.” Cromwell v. Equicor-Equitable HCA Corp.,
944 F.2d 1272, 1275 (6th Cir.1991); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107
S. Ct. 1549, 95 L. Ed. 2d 39 (1987).
{¶12} “The phrase ‘relate to’ is given broad meaning such that a state law cause of
action is preempted if ‘it has connection with or reference to that plan.’” Metro. Life Ins.
Co. v. Massachusetts, 471 U.S. 724, 730, 105 S. Ct. 2380, 885 L. Ed. 2d 728 (1985).
Congress’s intent in enacting ERISA was to completely preempt the area of employee
benefit plans and to make regulation of benefit plans solely a federal concern. Pilot at
46. “Thus, only those state laws and state law claims whose effect on employee benefit
plans is merely tenuous, remote or peripheral are not preempted.” Cromwell at 1276.
One rationale for the broad application of the preemption clause is to avoid conflicting
state rules on ERISA-related matters. Internatl. Resources, Inc. v. New York Life Ins.
Co., 950 F.2d 294, 299 (6th Cir.1991), citing Ingersoll-Rand Co. v. McClendon, 498 U.S.
133, 141, 111 S. Ct. 478, 112 L. Ed. 2d 474 (1991); FMC Corp. v. Holliday, 498 U.S. 52,
58, 111 S. Ct. 403, 112 L. Ed. 2d 356 (1990).
{¶13} Machlup argues that her claims are not preempted because her state law
claims do not conflict with ERISA law. This court in Halley, 107 Ohio App. 3d 518, 669
N.E.2d 70 (8th Dist. 1995), set forth the situations in which conflict preemption applied:
(1) when state and common law claims are for recovery of an ERISA plan benefit and (2)
when state law claims seek remedies for misconduct allegedly growing out of ERISA
plan administration. Id. at 522.
{¶14} In the instant case, Machlup’s claims are based on her contention that she is
entitled to more accumulated death benefit distributions from her husband’s annuities
than TIAA-CREF is distributing. She also contends the alleged deficiency in her
husband’s annuities are the result of TIAA-CREF’s alleged administrative
mismanagement. Thus, resolving Machlup’s state law claims for conversion, breach of
fiduciary duty, breach of duty of good faith and fair dealing, and unjust enrichment will
require the review of the investment allocations and the administration of the annuity
contracts to confirm the account balances. Such review will require an interpretation of
the ERISA plan terms and assessment of the administration of the plan.
In enacting ERISA, Congress’ primary concern was with the
mismanagement of funds accumulated to finance employee benefits and
the failure to pay employees benefits from accumulated funds. To that
end, it established extensive reporting, disclosure, and fiduciary duty
requirements to insure against the possibility that the employee’s
expectation of the benefit would be defeated through poor management
by the plan administrator.
Massachusetts v. Morash, 490 U.S. 107, 115, 104 L. Ed. 2d 98, 109 S. Ct. 1668
(1989).
{¶15} Therefore, Machlup’s claims are more than tenuously related to the ERISA
plan. As the court in Cromwell, 944 F.2d at 1276, stated,
It is not the label placed on a state law claim that determines whether it
is preempted, but whether in essence such a claim is for the recovery of
an ERISA plan benefit. Appellants’ complaint alleged promissory
estoppel, breach of contract, negligent misrepresentation, and breach
of good faith as grounds for the recovery of benefits * * *. Thus,
appellants’ state law claims are at the very heart of issues within the
scope of ERISA’s exclusive regulation and, if allowed, would affect the
relationship between plan principals by extending coverage beyond the
terms of the plan. Clearly, appellant’s claims are preempted by
ERISA.
{¶16} Likewise, here, Machlup’s claims, although couched in state law terms, are
seeking the recovery of accumulated pension benefits.
{¶17} Machlup also argues that her claims are not preempted because her annuity
contracts with TIAA-CREF were purchased separately from her husband’s retirement
plan and, therefore, are unrelated to his pension plan. We disagree. In August 2002,
Professor Machlup was required to take a minimum distribution from his retirement plan.
Therefore, at his direction, he specified the required amounts from his original annuity
contracts be transferred to new minimum distribution contracts. He instructed that upon
his death his accumulated pension benefits be transferred to new annuity contracts in
Machlup’s and their sons’ names to be paid in monthly amounts. Thus, these were not
new purchases, but transfers from the pension fund.
{¶18} Machlup cites to the decision in Waks v. Blue Cross/Blue Shield, 263 F.3d
872 (9th Cir. 2001), to support her contention that her annuity contracts were separate
from Machlup’s pension fund. However, Waks is distinguishable. In Waks, the plaintiff
was covered by her employer group health insurance policy that was subsequently
terminated and converted to an individual plan. Thereafter, plaintiff accrued medical
costs, which the individual policy refused to cover. The plaintiff sued the insurance
company, which argued her claims were preempted. However, the court concluded that
ERISA did not preempt the plan because the individual policy was purchased separately
from the terminated group plan. This is different from the instant case where Machlup is
referring to wrongdoing regarding the management of her husband’s pension fund.
Moreover in Waks, the ERISA policy was terminated. In the instant case, the pension
plan was never terminated. Instead, upon the professor’s death, the pension amounts
were transferred into annuity contracts. Thus, in the instant case, there is no separate
purchase.
{¶19} Machlup also cites to the recent decision by the Sixth Circuit in Gardner v.
Heartland Indus. Partners, L.P., 2013 U.S. App. LEXIS 9470 (6th Cir.2013). Gardner is
distinguishable. In Gardner, the plaintiffs’ employer sold the company to a buyer. As
part of the deal to sell the company, the employer terminated the executives’ pension plan
in order to avoid payment of a 13 million dollar “change of control” fee to the executives
set forth in the retirement plan. In the instant case, the pension fund was not terminated.
Also, in Gardner, the sales agreement between the company and buyer was at issue
because it sought to void the pension plan. Therefore, resolution of the case was
dependent on the terms of the sales contract, not the pension plan. In this case, the
resolution of the claims is dependent on the terms of the pension plan that were
incorporated into the annuity contracts. Accordingly, Machlup’s sole assigned error is
overruled.
{¶20} Judgment affirmed.
It is ordered that appellees recover from appellant their costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment into
execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
PATRICIA ANN BLACKMON, JUDGE
FRANK D. CELEBREZZE, JR., P.J., and
TIM McCORMACK, J., CONCUR