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Andrus v. Unum Life Insurance Co.

United States District Court, E.D. Louisiana

May 31, 2017

BRENDA ANDRUS, Plaintiff
v.
UNUM LIFE INSURANCE COMPANY OF AMERICA, Defendant

         SECTION: “E” (1)

          ORDER AND REASONS

          SUSIE MORGAN UNITED STATES DISTRICT JUDGE

         Before the Court is Defendant Unum Life Insurance Company of America's motion for partial summary judgment that the group long-term disability policy at issue is subject to ERISA.[1] The Plaintiff opposes the motion, arguing the Opelousas General Health System is a governmental entity exempt from ERISA.[2] For the reasons below, the motion for partial summary judgment is DENIED.

         BACKGROUND

         The Plaintiff, Brenda Andrus, worked as a case manager at Opelousas General Hospital.[3] The Defendant, Unum Life Insurance Company of America (“Unum”) issued a group long-term disability policy to employees of Opelousas General Health System (“the Plan.”)[4] The Plaintiff alleges she suffers from a number of medical conditions that prevent her from continuing to work, and that she is disabled under the terms of the Plan.[5] Unum denies the Plaintiff is eligible for long-term disability benefits. The Plaintiff also alleges her medical condition qualifies her for waiver of life insurance premium benefits under the Plan's terms. The Plaintiff seeks penalties against Unum under the Louisiana Insurance Code, alleging Unum's failure to pay her claims is arbitrary and capricious.[6]Plaintiff also brings a state-law claim for emotional distress.

         Unum seeks judgment as a matter of law that the Plan is an ERISA plan and that, as a result, the Plaintiff's state-law claims are preempted, the evidence is constrained to the administrative record, discovery is limited, and the matter may not be submitted to a jury.

         SUMMARY JUDGMENT STANDARD

         Summary judgment is appropriate only “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”[7] “An issue is material if its resolution could affect the outcome of the action.”[8]When assessing whether a material factual dispute exists, the Court considers “all of the evidence in the record but refrains from making credibility determinations or weighing the evidence.”[9] All reasonable inferences are drawn in favor of the nonmoving party.[10]There is no genuine issue of material fact if, even viewing the evidence in the light most favorable to the nonmoving party, no reasonable trier of fact could find for the nonmoving party, thus entitling the moving party to judgment as a matter of law.[11]

         If the dispositive issue is one on which the moving party will bear the burden of persuasion at trial, the moving party “must come forward with evidence which would ‘entitle it to a directed verdict if the evidence went uncontroverted at trial.'”[12] If the moving party fails to carry this burden, the motion must be denied. If the moving party successfully carries this burden, the burden of production then shifts to the nonmoving party to direct the Court's attention to something in the pleadings or other evidence in the record setting forth specific facts sufficient to establish that a genuine issue of material fact does indeed exist.[13]

         If the dispositive issue is one on which the nonmoving party will bear the burden of persuasion at trial, the moving party may satisfy its burden of production by either (1) submitting affirmative evidence that negates an essential element of the nonmovant's claim, or (2) demonstrating there is no evidence in the record to establish an essential element of the nonmovant's claim.[14] When proceeding under the first option, if the nonmoving party cannot muster sufficient evidence to dispute the movant's contention that there are no disputed facts, a trial would be useless, and the moving party is entitled to summary judgment as a matter of law.[15] When, however, the movant is proceeding under the second option and is seeking summary judgment on the ground that the nonmovant has no evidence to establish an essential element of the claim, the nonmoving party may defeat a motion for summary judgment by “calling the Court's attention to supporting evidence already in the record that was overlooked or ignored by the moving party.”[16] Under either scenario, the burden then shifts back to the movant to demonstrate the inadequacy of the evidence relied upon by the nonmovant.[17] If the movant meets this burden, “the burden of production shifts [back again] to the nonmoving party, who must either (1) rehabilitate the evidence attacked in the moving party's papers, (2) produce additional evidence showing the existence of a genuine issue for trial as provided in Rule 56(e), or (3) submit an affidavit explaining why further discovery is necessary as provided in Rule 56(f).”[18] “Summary judgment should be granted if the nonmoving party fails to respond in one or more of these ways, or if, after the nonmoving party responds, the court determines that the moving party has met its ultimate burden of persuading the court that there is no genuine issue of material fact for trial.”[19]

         LAW AND ANALYSIS

         The Plaintiff seeks to recover from Unum benefits allegedly due to her under the Plan. In its motion, Unum seeks a determination that the Plan is governed by ERISA section 502(a)(1)(B), codified at 29 U.S.C. § 1132(a)(1)(B).[20] In response, the Plaintiff argues the Plan is exempt from ERISA pursuant to 29 U.S.C. § 1003(b)(1), which expressly excludes government plans.

         It is undisputed that the Opelousas General Hospital System obtained the group long-term disability policy for its eligible employees from Unum.[21] The material facts surrounding the creation of OGHS also are undisputed.

         In 1953, the St. Landry Parish Police Jury, now known as the St. Landry Parish Council, [22] created the Hospital Service District No. 2, which is a political subdivision of the State of Louisiana.[23] The Hospital Service District No. 2 is statutorily authorized to enter into an agreement with a third party for the third party to manage and operate a hospital for the benefit of the service district.[24] On September 21, 1954, the citizens of Opelousas voted to pass a one-mill ad valorem tax for 20 years to pay for part of the hospital construction.[25] Pursuant to its statutory authority, the Hospital Service District No. 2 entered into a lease agreement with the Hospital Corporation of the Sisters of Marianites of the Holy Cross for it to operate the newly constructed hospital.[26] In 1971, the Hospital Service District No. 2 submitted another bond proposal to fund the expansion of the hospital, but the proposal was defeated by the voters.[27] In response, a number of members of the Board of Commissioners of the Hospital Service District No. 2 created a public trust-Opelousas General Hospital Authority d/b/a Opelousas General Hospital System (“OGHS”).[28] The Hospital Service District No. 2 is the beneficiary of the public trust. Pursuant to the Trust Indenture, the five Commissioners for the Hospital Service District No. 2 serve as five of the nine Trustees of OGHS.[29]

         Because the Court finds the material facts in this matter not to be in dispute, the Court will determine whether Unum is entitled to judgment as a matter of law that Plaintiff's long-term disability plan is an ERISA plan.

         ERISA comprehensively regulates employee benefit plans.[30] If a participant in an employee benefit plan could have brought her claim under ERISA, ERISA completely preempts her other causes of action.[31] Whether a participant could have brought her suit under ERISA turns on whether the plan is an “ERISA plan.”[32] Although ERISA's scope is expansive, certain types of employee benefit plans are excluded from coverage.

         Title 29, United States Code, Section 1003(b)(1) provides that ERISA “shall not” apply to any employee benefit plan if such a plan is a “governmental plan.”[33] ERISA defines a “governmental plan” as “[a] plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of the foregoing.”[34]

         The Court must therefore determine whether OGHS, which established and now maintains the Plaintiff's long-term disability plan, is (1) a political subdivision of the State of Louisiana, or (2) an agency or instrumentality of a political subdivision of the State of Louisiana. If OGHS is either a political subdivision of the State of Louisiana or an agency or instrumentality of a political subdivision of the State of Louisiana, the employee benefit plan it established and maintains is a “governmental plan” exempt from ERISA.

         I. Political Subdivision

         The Court will first examine whether OGHS is a political subdivision of the State of Louisiana. ERISA does not define the term “political subdivision.”[35] For the purpose of discerning whether an entity is a political subdivision under ERISA, the Fifth Circuit has adopted the Hawkins test formulated by the Supreme Court in NLRB v. Natural Gas Utility District of Hawkins County.[36] Under the Hawkins test, an entity is a political subdivision if it is either “(1) created directly by the state, so as to constitute departments or administrative arms of the government, or (2) administered by individuals who are responsible to public officials or to the general electorate.”[37]

         The Plaintiff need only establish that OGHS fits the definition of a political subdivision under one prong or the other of the Hawkins test. The Court will first address the second prong, whether OGHS is “administered by individuals who are responsible to public officials or to the general electorate.”[38]

         Unum argues OGHS is not a political subdivision because it “is not administered by individuals who are responsible to public officials or to the general public.”[39] Unum further contends the members of the Board of Trustees of OGHS are all individual citizens serving in their private capacities.[40] The Plaintiff, on the other hand, argues there is little difference between the administration of the Hospital Service District No. 2, which the parties agree is a political subdivision of the State of Louisiana, and OGHS.[41] To determine whether OGHS is administered by individuals who are responsible to public officials or the general electorate, the Court will examine OGHS's governance structure.

         The governing body of St. Landry Parish is the St. Landry Parish Council (“Parish Council”).[42] The publicly elected members of the Parish Council appoint five Commissioners to the Commission of the Hospital Service District No. 2.[43] These five Commissioners of the Hospital Service District No. 2 are a majority of the Trustees on the Board of Trustees of OGHS.[44] The original Trust Indenture states “the Trustees of this Trust shall be . . . the persons presently constituting the members of the governing Commission of the [Hospital Service District No. 2].”[45] The Amended Trust Indenture increased the number of Trustees of OGHS to nine, but these additional Trustees also are appointed by the Commissioners of the Hospital Service District No. 2.[46] The only limitation on the appointments by the Hospital Service District No. 2 is the additional four Trustees must be residents of St. Landry Parish.[47] The Trust Indenture provides that officers of the Commission and OGHS are identical.[48]

         The Commission of the Hospital Service District No. 2, as the governing authority of the beneficiary of the Trust, has the power remove a Trustee of OGHS for cause.[49] The Board of Trustees of OGHS is required to adopt bylaws, but the bylaws must be submitted to the “governing authority of the beneficiary”-in this case, the Commission of Hospital Service District No. 2.[50] The Commission has the power to veto OGHS's bylaws or any proposed changes to its bylaws.[51] The Trust Indenture was required to be approved by the Commission of the Hospital Service District No. 2 and by the Louisiana State Bond Commission.[52] Amendments to the Trust Indenture also must be approved by the Commission of the Hospital Service District No. 2 and by the Louisiana State Bond Commission.[53] In sum, neither OGHS's bylaws nor its Trust Indenture may be changed without the consent of the Commission of the Hospital Service District No. 2, which is appointed by the Parish Council.

         The Court finds that OGHS is administered by individuals who are responsible to public officials, namely the Commissioners of the Hospital Service District No. 2, which is a political subdivision. The Commissioners of the Hospital Service District No. 2 are responsible to the Parish Council, which also is a political subdivision. OGHS is a political subdivision of the State of Louisiana for the purposes of ERISA because it is “administered by individuals who are responsible to public officials or the general electorate.”[54]

         Because the Court finds OGHS is a political subdivision of the State of Louisiana, the employee benefit plan established and maintained by OGHS is a “governmental plan, ” which is exempt from ERISA coverage pursuant to 29 U.S.C. § 1003(b)(1).[55]

         II. Agency or Instrumentality

         Alternatively, if OGHS is not itself a political subdivision of the State of Louisiana, the Plaintiff's plan may nevertheless be a governmental plan exempt from ERISA if OGHS is an agency or instrumentality of the Hospital Service District No. 2, a political subdivision of the State of Louisiana. ERISA does not define “agency or instrumentality” for the purposes of determining whether a plan is exempt as a governmental plan.[56] The Fifth Circuit has adopted the six-factor test provided in Internal Revenue Service Revenue Ruling 57-128, as refined by Internal Revenue Service Revenue Ruling 89-49, as the appropriate test for determining whether an entity is an agency or instrumentality of a governmental entity.[57] In Revenue Ruling 57-128, the IRS set forth the following six factors to be considered in determining whether a particular entity is an agency or instrumentality of a state or political subdivision:

(1) whether it is used for a governmental purpose and performs a governmental function; (2) whether performance of its function is on behalf of one or more states or political subdivisions; (3) whether there are any private interests involved, or whether the states or political subdivisions involved have the powers and interests of an owner; (4) whether control and supervision of the organization is vested in public authority or authorities; (5) if express or implied statutory or other authority is necessary for the creation and/or use of such an instrumentality, and whether such authority exists; and (6) the degree of financial autonomy and the source of its operating expenses.[58]

         Revenue Ruling 89-49 refined Revenue Rule 57-128, stating:

One of the most important factors to be considered in determining whether an organization is an agency or instrumentality of the United States or any state or political subdivision is the degree of control that the federal or state government has over the organization's everyday operations. Other factors include: (1) whether there is specific legislation creating the organization; (2) the source of funds for the organization; (3) the manner in which the organization's trustees or operating board are selected; and (4) whether the applicable governmental unit considers the employees of the organization to be employees of the applicable governmental unit. Although all of the above factors are considered in determining whether an organization is an agency of a government, the mere satisfaction of one or all of the factors is not necessarily determinative.[59]

         The Court must consider the factors provided in these Revenue Rulings to determine whether OGHS is either an agency or instrumentality of the Hospital Service District No. 2.

         First, OGHS was created “for the public purposes hereinafter set forth as a public instrumentality of the state or a subdivision or agency thereof, under the provisions of Act. No. 135, 1970, [Louisiana Revised Statutes] 9:2341, et seq.”[60] Louisiana's public trust statute states that a public trust may be created “to issue obligations and to provide funds for the furtherance and accomplishment of any authorized public functions”[61] such as “hospital, medical, health, nursery care, nursing care, clinical, ambulance, laboratory and related services and entities.”[62] The Court finds Unum's argument that providing hospital services is not a “traditional government function” unpersuasive.[63] Louisiana's public trust statute expressly provides that a public trust may be created for the “public function” of administering hospital and medical services. Accordingly, the Court finds this factor weighs in favor of finding OGHS is an agency or instrumentality of the Hospital Service District No. 2, a political subdivision of the State of Louisiana.

         Second, OGHS performs its functions on behalf of the Hospital Service District No. 2, a political subdivision of Louisiana. Pursuant to the Trust Indenture, the Hospital Service District No. 2 is the beneficiary of the public trust, and is the owner of the hospital. OGHS provides the day-to-day operations of the hospital, but the hospital exists “for the use and benefit” of the Hospital Service District No. 2.[64] This factor weighs in favor of finding OGHS is an agency or instrumentality of the Hospital Service District No. 2, a political subdivision of the State of Louisiana.

         Third, although there are private interests involved, as the members of the Board of Trustees serve in their capacities as citizens of St. Landry Parish, the Hospital Service District No. 2 has the powers and interests of an owner. Although OGHS runs the day-today operations of the hospital, the Hospital Service District No. 2 is the owner. The January 25, 1972 Resolution of Hospital Service District No. 2 transferred the management and supervision of the Opelousas General Hospital to “the Opelousas General Hospital Authority, a Public Trust, . . . pursuant to the terms and conditions of a Management Contract executed by and between the Hospital Service District No. 2 of St. Landry Parish, Louisiana, as Owner and the Opelousas General Hospital Authority, a Public Trust, as Manager.”[65] Further, as discussed above, the Hospital Service District No. 2 has the power to appoint and remove members of the OGHS Board of ...


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