:: ERISA’s Governmental Plan Exemption Defeats Provider’s Claims.

n Plaintiff’s view, dismissal at this juncture is premature because discovery may reveal that non-governmental employers also participate in the Plan. (PI. Resp., at 2.) The court disagrees. In ruling on a motion to dismiss, the court is “not obliged to accept as true legal conclusions or unsupported conclusions of fact.”

DeBartolo v. Indian Prairie Sch. Dist. No. 204, 2008 U.S. Dist. LEXIS 59239 (N.D. Ill. Aug. 5, 2008)

Motion practice plays a significant role in ERISA cases. Thus, the ERISA defendant often has an early opportunity to unhinge a plaintiff’s case, and any plaintiff escaping a thorough vetting of claims through various motions should be considered fortunate indeed.

Governmental Plan Exemption

Debartolo demonstrates the vagaries of the ERISA exemption provisions – in this case the governmental plan exception. The plaintiff, a medical provider having taken an assignment, filed suit to recover benefits for services provider.

The defendant plan filed a motion to dismiss which the court granted. In ruling on the motion, the court recited the essential elements of the exemption – and the factual component that can make its scope problematic:

ERISA provides that a participant or beneficiary of a plan may bring a civil action “to recover benefits due to him under the terms of his plan . . . .” 29 U.S.C. § 1132(a)(1)(B).

On the other hand,

“[t]he provisions of this subchapter shall not apply to any employee benefit plan if . . . such plan is a governmental plan (as defined in section 1002(32) of this title).” 29 U.S.C. § 1003(b)(1). The statute defines a “governmental plan” as “a plan established or maintained for its employees by . . . the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.” 29 U.S.C. § 1002(32).

Exception To The Exemption

And yet, factual issues may affect the determination, since:

. . . “the participation by a nongovernmental employer takes a plan out of the definition of governmental plan of § 1002(32).” Krystyniak, 783 F. Supp. at 356 (citing Livolsi v. City of New Castle, 501 F. Supp. 1146 (W.D. Pa. 1980), Brooks v. Chicago Housing Auth., No. 89 C 9304, 1990 U.S. Dist. LEXIS 8233, 1990 WL 103572 (N.D. Ill. July 5 1990), and Lovelace v. Prudential Ins. Co. of Amer., 775 F. Supp. 228 (S.D. Ohio 1991)).

For example:

[In Brooks v. Chicago Housing Auth.], the Chicago Housing Authority did not establish or maintain the plan at issue, but “voluntarily chose to participate in a private benefit plan for its employees.” 1990 U.S. Dist. LEXIS 8233, 1990 WL 103572, at *2. The court held that the plan was not a “governmental plan” for purposes of ERISA, explaining that “a whole plan should not be exempt from ERISA merely because a governmental body participates in the plan.” Id.

The Die Is Cast

Notwithstanding the oft-cited exception to the well pleaded complaint rule, it remains true that the initial wording of the complaint has a significant bearing on where the case will end up. In this case, the plaintiff evidently had information at the outset that indicated governmental status. This allegation influenced the court’s decision to dismiss the complaint (with an opportunity to amend).

In Plaintiff’s view, dismissal at this juncture is premature because discovery may reveal that non-governmental employers also participate in the Plan. (PI. Resp., at 2.) The court disagrees.

In ruling on a motion to dismiss, the court is “not obliged to accept as true legal conclusions or unsupported conclusions of fact.” County of McHenry v. Insurance Co. of the West, 438 F.3d 813, 818 (7th Cir. 2006) (quoting Hickey v. O’Bannon, 287 F.3d 656, 658 (7th Cir. 2002)).

The complaint expressly alleges that Defendant maintains and administers the Plan in this case, which makes it a governmental plan for purposes of ERISA. See South Cent. Indiana Sch. Trust, 2007 U.S. Dist. LEXIS 78804, 2007 WL 3102149, at *3 (”[A] plan is a governmental plan if it is either established or maintained by a government body for its employees.”) [*6] (internal quotations omitted). Plaintiff does not allege that the Plan includes private employers, nor does he offer any support for this speculation. On its face, therefore, the complaint fails to state a claim for relief, and must be dismissed.

Note: The court notes that, as a general rule, a plan established or maintained by a public school is a “governmental plan” and is not subject to ERISA. See Krystyniak v. Lake Zurich Community Unit Dist. No. 95, 783 F. Supp. 354, 355 (N.D. Ill. 1991) (school district’s employee welfare benefit plan was exempt from ERISA); Mudra v. School City of Hammond, No. 2:02CV260 PPS, 2004 U.S. Dist. LEXIS 27829, 004 WL 3318761, at *11 (N.D. Ind. Feb. 6, 2004) (the defendant school was “a political subdivision of the state and thus not subject to ERISA.”)

Procedural Comment – The purpose of a motion to dismiss is:

. . . to test the sufficiency of the plaintiff’s complaint, not to decide its merits. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). A motion to dismiss will be granted only “if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which entitles him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957). In reviewing a motion to dismiss for failure to state a claim, the court accepts as true all well-pleaded factual allegations in the plaintiff’s complaint and draws all reasonable inferences in his favor. Cler v. Illinois Educ. Ass’n, 423 F.3d 726, 729 (7th Cir. 2005); Franzoni v. Hartmarx Corp., 300 F.3d 767, 770 (7th Cir. 2002).

The court prefers attachment of plan documents to the motion. The defendants attempt to convert the issue to one of summary judgment by attaching an affidavit drew this comment from the court:

“[I]f the district court wishes to consider material outside the pleadings in ruling on a motion to dismiss, it must treat the motion as one for summary judgment and provide each party notice and an opportunity to submit affidavits or other additional forms of proof.” Loeb Indus., Inc. v. Sumitomo Corp., 306 F.3d 469, 479 (7th Cir. 2002). The court declines to consider the [Defendant’s] affidavit in ruling on Defendant’s motion to dismiss, or to convert it into a motion for summary judgment.

Notably, neither party has attached a copy of the Plan documents themselves. See Kaden v. First Commonwealth Ins. Co., No. 05 C 2212, 2006 U.S. Dist. LEXIS 35888, 2006 WL 1444886, at *2 (N.D. Ill. May 18, 2006) (quoting Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir. 1993)) (”Documents that a defendant attaches to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff’s complaint and are central to h[is] claim.”)

More On The Exemption Exception – This additional case authority adds insight into the operation of the exception:

  • Livolsi v. City of New Castle, 501 F. Supp. 1146 (W.D. Pa. 1980), 501 F. Supp. at 1150 (”Since the local governmental body voluntarily accepted a private welfare benefit plan for its employees it cannot later complain that ERISA regulation of that plan invades its sovereignty.”);
  • South Cent. Indiana Sch. Trust v. Poyner, No. 1:06-cv-1053-RLY-WTL, 2007 U.S. Dist. LEXIS 78804, 2007 WL 3102149, at *5 (S.D. Ind. Oct. 19, 2007) [*5] (”[T]he Plan at issue involves both public and private employers for the benefit of their respective employees. It is therefore subject to ERISA regulation.”)