857 F. 2d 1477 - American Institute of Architects Benefit Insurance Trust v. John Hancock Mutual Life Insurance Company & G

No. 87-6492.

United States Court of Appeals, Ninth Circuit.

Before FARRIS and WIGGINS, Circuit Judges, and M.D. CROCKER,* Senior District Judge.

MEMORANDUM**

The American Institute of Architects Benefit Insurance Trust ("AIA-BIT") appeals the dismissal of their complaint, without leave to amend, for lack of jurisdiction. The district court held that AIA-BIT had failed to plead sufficient facts to show that a Rate Stabilization Reserve ("RSR"), created as part of a Component Trust Fund, was a plan asset, or that John Hancock Mutual Life Insurance Company ("Hancock") and the RSR members were fiduciaries, raising federal jurisdiction under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Secs. 1001-1461. We affirm.

A dismissal for lack of jurisdiction over the subject matter and for failure to state a cause of action, pursuant to Fed.R.Civ.P. 12(b)(1), (6), is a question of law reviewed de novo. Fort Vancouver Plywood Co. v. United States, 747 f.2d 547, 549 (9th Cir.1984). Review is limited to the contents of the complaint. A complaint should not be dismissed under Rule 12 "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). All allegations of material fact bearing on subject matter jurisdiction are taken as true and construed in the light most favorable to the non-moving party. Western Reserve Oil & Gas Co. v. New, 765 F.2d 1428, 1430 (9th Cir.1985), cert. denied, 474 U.S. 1056 (1986).

In order to decide whether the district court was correct in dismissing AIA-BIT's complaint for lack of ERISA jurisdiction, we must address three issues. As a threshold matter, we must determine whether AIA-BIT was an "employee welfare benefit plan" subject to ERISA, as defined in the Act, 29 U.S.C. Sec. 1002(1). The district court assumed, without deciding, that "the AIA-BIT Trust is not itself excluded from the coverage of ERISA and must itself, therefore, behave in a manner subject to the strictures of ERISA. At least, the court will assume that that is probably sufficiently pled to withstand a motion to dismiss." ER Tab D, 10. We, nonetheless, review this assumption, to the extent that it implicates questions of law. If we decide that AIA-BIT was, indeed, an employee welfare benefit plan we need to consider next whether the appellees were fiduciaries for the purposes of ERISA, and this directly raises the issue of whether the Rate Stabilization Reserves ("RSR") were fund assets. Even if we decide the RSR was not a fund asset, we would still need to consider whether defendants were subject to ERISA jurisdiction for participating in ERISA-prohibited transactions. We hold that the AIA-BIT was not an employee welfare benefit plan because it was really a multiple employer trust, and that the RSR itself did not constitute a fund asset. The district court's decision dismissing the complaint for lack of subject matter jurisdiction is, therefore, affirmed.

B. Was AIA-BIT an Employee Welfare Benefit Plan?

ERISA defines an employee welfare benefit plan as "any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both" to the extent that such plan was established or maintained for the enumerated purposes of the Act. 29 U.S.C. Sec. 1002(1). Appellees argue that AIA-BIT does not satisfy this definition, and thus is not an employee benefit plan for the purposes of invoking ERISA jurisdiction. AIA-BIT can satisfy the requirement by showing that it is either an employee organization, an employer, or a group or association of employers. Because no allegation was made that AIA-BIT was an employee organization, as defined in 29 U.S.C. Sec. 1002(4), appellant must rely on its showing that it is an employer or an employer organization. ERISA defines "employer" as "any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan." 29 U.S.C. Sec. 1002(5). It seems clear, however, that the American Institute of Architects (AIA) is not itself an employer with respect to the AIA-BIT. AIA does not employ all of the persons or entities who subscribe to the group insurance offered by AIA-BIT. Rather, appellants argued that the AIA formed AIA-BIT in its associational capacity and for the benefit of its membership who must be licensed architects. The professional status of being an architect, not the status of being an employer, allows one membership in the AIA and, ultimately, to subscribe to the AIA-BIT group insurance program.

Nevertheless, the question of whether the AIA would qualify as a bona fide association of employers for the purposes of ERISA is a question of fact. Appellees cite a number of Department of Labor advisory opinions ruling that such organizations as the American Association of Petroleum Landmen, Dep't Labor Ltr. Op. 81-51A (June 9, 1981), and the National Association of Professional Insurance Agents, Dep't Labor Ltr. Op. 80-68A (Dec. 1, 1980), are not employers associations. The Labor Department has, however, recognized that an employers association's status is a factual question controlled by a number of difficult inquiries, including such questions as how its members are solicited, who actually participates in the association, its history, the status of employers in the group, and who actually controls and directs its activities and operations. See Dep't Labor Ltr. Op. 83-14A (March 14, 1983); Dep't Labor Ltr. Op. 82-59A (Nov. 10, 1982). Courts have also concluded that whether an employers association satisfies ERISA is a fact-intensive inquiry. See Credit Managers Ass'n v. Kennesaw Life & Accident Ins. Co., 809 F.2d 617, 625 (9th Cir.1987) (affirming district court's factual finding that employer organization was established by a cognizable group or association of employers with some organizational relationship among them); National Business Conference Employee Benefit Ass'n v. Anderson, 451 F.Supp. 458, 459-60 (S.D.Iowa 1977) (making findings of fact concerning teachers association). We hold, therefore, that AIA-BIT adequately pled enough facts inits complaint to withstand a dismissal on the question of whether it was a bona fide employers association for the purposes of ERISA.

We still need to consider, however, whether AIA-BIT was disqualified from being an employee welfare benefit plan because it was actually governed or controlled by a plan administrator, and was thus a multiple employer trust. This issue, unlike the question of the status of the employers association, can be resolved conclusively. Courts have looked quite closely at multiple employer trusts over the years to ascertain whether they are truly employee welfare benefit plans maintained or controlled by employers and thereby subject to ERISA or, instead, are simply insurance programs subject to state regulation. Quite often, courts have concluded that multiple employer trusts ("METs") do not meet the definition of an employee welfare benefit plan for purposes of ERISA jurisdiction. See e.g., Credit Managers Ass'n, 809 F.2d at 625; Donovan v. Dillingham, 688 F.2d 1367, 1372 (11th Cir.1982); Taggart Corp. v. Life & Health Benefits Admin., Inc., 617 F.2d 1208, 1210-11 (5th Cir.1980), cert. denied sub nom. Taggart Corp. v. Efros, 450 U.S. 1030 (1981). METs are entities utilized by insurance companies to sell group insurance coverage to unrelated groups. They are an insurance funding vehicle. One court identifies METs by the following characteristics:

[e]mployers have no business or social connections with one another; employers are actively solicited by the insurer; the plan is promoted by the insurer; it is a profit-generating enterprise; and ... most important, all decisions regarding the trust are made by the insurer, i.e., the participating employers possess no actual decision-making powers.

Insurance & Prepaid Benefits Trusts v. Marshall, 90 F.R.D. 703, 705 (C.D.Cal.1981) (original emphasis), aff'd mem., 685 F.2d 443 (9th Cir.1982), cert. denied sub nom. Insurance & Prepaid Benefits Trusts v. Donovan, 459 U.S. 1103 (1983).

The court in Marshall developed a three-part test to determine the status of a MET. The court made three factual determinations: (a) whether there existed an association of employers; (b) whether the supposed employee welfare benefit plan was representative of the participating employers; and (c) whether the plan was governed by a truly independent decision-making body, and not by the insurer or plan administrator. Marshall, 90 F.R.D. at 706. If an entity satisfies these three requirements it is not an MET and is, instead, a legitimate employee welfare benefit plan for the purposes of ERISA. While these are factual inquiries, a plaintiff must aver sufficient facts in its complaint to make a case that the entity in question is not an MET.

For the purposes of the Marshall test, we assume that there existed an association of employers, the question discussed above. We also assume that AIA-BIT in its complaint made a sufficient showing that the entity in question here, created by the RSR agreement, was representative of the participating employers, since that agreement was signed by the individual component trustees for the Design Professional Group Insurance Plan ("DPGIP"). However, AIA-BIT has not made a showing that the committee established by the RSR agreement was, in fact, an independent decision-making body. Instead, the agreement indicates that the plan administrator, originally Association Administrators & Consultants, Inc. ("AA & C"), held complete and exclusive authority over the disposition of funds in the RSR, as per paragraph 4.1 of the agreement. Finally, AIA-BIT seemed to concede in its first amended complaint that the DPGIP was, in fact, a MET and that AA & C effectively controlled or guided the management of the plans and their assets. We rule, therefore, that the DPGIP was not an employee welfare benefit plan subject to ERISA jurisdiction.

C. Were Defendants ERISA Fiduciaries?

Even if we had assumed, as the district court did, that AIA-BIT, acting through DPGIP, was an employee welfare benefit plan, we would still decide that the defendants were not fiduciaries, for the purposes of ERISA jurisdiction under 29 U.S.C. Sec. 1132(e)(1). ERISA defines a fiduciary as anyone who "exercises any discretionary authority or discretionary control respecting management of [a] plan or exercises any authority or control respecting management or disposition of its assets." 29 U.S.C. Sec. 1002(21)(A)(i).

The district court concluded that none of the defendants owed any ERISA fiduciary duties to the plaintiffs as a result of the contractual relationship established between them by the RSR agreement. Rather, the court concluded that the excess insurance premiums paid to John Hancock, and accounted for under the RSR, were the equivalent of reserves set and held by an insurer. The RSR amounted "to a slightly more complex variation of a rather common practice where an insurance company set premiums and then set up reserve accounts that allow the smoothing out of fluctuations over the long run." ER Tab D, 10-11. The court held that the plaintiff did not show

how the existence of the reserve in the hands of the insurance company--a reserve, after all, intended to cover insured risk now and in the future--turns that company into an ERISA fiduciary over that part of the premium charge that goes into the reserve account. Nothing indicates the company must invest money in any particular way; and nothing controls its really unfettered discretion as to proper investments in handling of those funds in its hands.

ER Tab D, 11-12.

We rule that the RSR was not a fund asset. It was, instead, a device used only by the insurance company to round-off premium payments. AIA-BIT had an entitlement to a refund of monies placed in that account, but that right was arbitrated solely by the RSR agreement. The fact that the RSR is not a fund asset is reinforced by the conclusion that the parties had no discretionary authority over the RSR funds because their disposition was placed in the hands of the plan administrator, AA & C, with any entitlement to their disposition being governed by contract.

AIA-BIT argues, however, that even if the defendants are not ERISA fiduciaries, they are still subject to ERISA jurisdiction for their involvement in ERISA-prohibited transactions. While it is true that ERISA's jurisdiction under 29 U.S.C. Sec. 1132(a)(3) does not depend on the character of the defendants, but on the nature of the conduct complained of, AIA-BIT has not shown, as discussed above, that any violation of an ERISA fiduciary obligation has occurred. Without sufficient pleading that the RSR was a fund asset and that the defendants owed AIA-BIT fiduciary duties under ERISA, appellant cannot satisfy the jurisdictional requirements for ERISA. We hold that the district court was correct in dismissing the complaint, without leave to amend, for lack of subject matter jurisdiction.

D. Costs on Appeal.

AIA-BIT has raised the question of costs on appeal. Reply Br. 2 n. 1. AIA-BIT claims that because the appellees disputed the district court's assumption that AIA-BIT was an employee welfare benefit plan, they should have cross-appealed and that the costs of this appeal allocable to that issue should be borne by the appellees, pursuant to Fed.R.App.P. 39(a). We rule that the parties shall bear their own costs on appeal.

The judgment of the district court is AFFIRMED.