United States District Court, E.D. New York
August 6, 2005.
BARRY ENGLER, Plaintiff,
CENDANT CORPORATION, and INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendants.
The opinion of the court was delivered by: ARTHUR SPATT, District Judge
MEMORANDUM OF DECISION AND ORDER
Barry Engler ("Engler" or the "Plaintiff") filed this action in
New York State Supreme Court, Nassau County, against two of his
former employers, Cendant Corporation ("Cendant") and
International Business Machines Corporation ("IBM"), alleging
fraudulent inducement, negligent misrepresentation, and breach of
contract. Cendant removed the action to this Court, pursuant to
28 U.S.C. § 1441, stating that the Plaintiff had asserted claims
for employee benefits governed by the Employee Retirement Income
Security Act ("ERISA"). Cendant and IBM then moved for dismissal
of the complaint under Federal Rule of Civil Procedure 12(b)(6),
on the ground that Engler's common law claims are preempted by
Engler was employed by Cendant and its predecessor Avis from
1976 to 2002, a period of more than twenty-five years. On
December 17, 2001, Engler received a letter from IBM extending to
him an offer of employment with IBM Global Services ("IBM Offer
of Employment"). The complaint alleges, upon information and
belief, that the IBM Offer of Employment was part of an
outsourcing agreement between IBM and Cendant in which certain
Cendant employees were offered employment with IBM.
In conjunction with the offer of employment, Engler received a
letter from Cendant advising him of special considerations that
Cendant and IBM agreed he would be entitled to if he accepted the IBM offer of employment.
In the letter, dated December 21, 2001, stated that "IBM will
recognize all service credit that is recognized by Cendant today
for all purposes including eligibility and vesting in an IBM
pension plan." Compl. Ex. 4. The letter also references the
outsourcing agreement between Cendant and IBM. On December 26,
2001, allegedly based upon the representations contained in the
letters from Cendant and IBM, Engler accepted employment with
On February 11, 2002, Engler commenced employment with IBM. On
the same day, Engler received a letter from Cendant that
congratulated him on his new opportunity with IBM and stated that
"should IBM terminate your employment other than for `Cause'
during the first 24 months following your employment with IBM,
you shall receive severance pay from IBM under the greater of the
severance pay plans (Cendant or IBM) based on combined credited
service." Compl. Ex. 4. On March 26, 2002, Engler entered into an
Agreement and General Release not to sue Cendant. In
consideration for the Release, Cendant stated that there were
"several benefits that Cendant and IBM have worked together to
make available to you." Compl. Ex. 4. The letter went on to list
benefits such as salary, a profit sharing bonus, stock options,
health, welfare, and pension benefits, and severance pay.
On May 3, 2004, more than two years after beginning employment
at IBM, Engler received a notice that his employment would be
terminated as of June 2, 2004. Attached to the notice of termination was the IBM Global Service
Delivery Resource Action Summary Plan Description, which states
that the Plan was subject to ERISA. Engler inquired about the
severance plan referred to in the February 11, 2002 letter from
Cendant and IBM advised him that it was not applicable because
his termination occurred more than two years after his initial
employment date with IBM.
As to the benefits that Engler was entitled to at the time of
his termination, the Plaintiff alleges that IBM failed to
recognize his service at Cendant for purposes of calculating the
amount of his severance and health benefits. Engler alleges that
IBM offered him four weeks severance and three months transition
medical benefits, which were conditioned upon Engler signing a
General Release and Covenant Not to Sue IBM. Engler contends that
if IBM had included his service with Cendant, he would have been
entitled to twenty-six weeks severance and one year of transition
Engler did not sign the IBM General Release and Covenant Not to
Sue and IBM denied Engler severance and medical benefits.
Instead, Engler commenced this law suit alleging New York State
common law causes of action against Cendant for fraudulent
inducement, negligent misrepresentation, and breach of contract.
The complaint states no cause of action against IBM, but demands
$50,000 from IBM and $100,000 from Cendant. After removing the
case to this Court, IBM and Cendant both moved to dismiss, pursuant to Rule 12(b)(6), arguing that the
Plaintiff's state law causes of action are preempted by ERISA.
A. The Motion to Dismiss Standard
On a motion to dismiss for failure to state a claim pursuant to
Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court
should dismiss the complaint only if it appears beyond doubt that
the plaintiff can prove no set of facts in support of his
complaint which would entitle him to relief. King v. Simpson,
189 F.3d 284, 286 (2d Cir. 1999); Bernheim v. Litt,
79 F.3d 318, 321 (2d Cir. 1996). The Court must accept all well-pled
factual allegations in the complaint as true and draw all
reasonable inferences in favor of the plaintiff. Koppel v. 4987
Corp., 167 F.3d 125, 127 (2d Cir. 1999); Jaghory v. N.Y. State
Dep't of Educ., 131 F.3d 326, 329 (2d Cir. 1997). The issue is
not whether the plaintiff will ultimately prevail but whether the
plaintiff is entitled to offer evidence to support the claims.
Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d
B. ERISA Preemption
Congress enacted ERISA as a remedial statute to protect the
interests of the beneficiaries of private retirement plans by
reducing the risk of the loss of pension benefits. Geller v.
County Line Auto Sales, Inc., 86 F.3d 18, 22 (2d Cir. 1996).
"ERISA established a comprehensive federal statutory program
intended to control abuses associated with pension benefit plans." Id. In order to
achieve national uniformity in the regulation of such plans,
ERISA expressly preempts "any and all State laws insofar as they
may now or hereafter relate to any employee benefit plan" covered
by the statute. 29 U.S.C. § 1144(a).
Accordingly, common law actions that "relate to" employee
benefit plans are preempted by ERISA. See Cicio v. John Does
1-8, 385 F.3d 156, 158 (2d Cir. 2004); Kennedy v. Empire Blue
Cross and Blue Shield, 989 F.2d 588, 591 (2d Cir. 1993) (stating
that ERISA preempts state law contract claims pertaining to the
denial of benefits under employee benefit plans); Smith v.
Dunham-Bush, Inc., 959 F.2d 6, 9 (2d Cir. 1992) (holding that a
state law of general application "relates to" pension plan for
preemption purposes, although it had only an indirect effect on
the plan). In other words, "any state-law cause of action that
duplicates, supplements, or supplants the ERISA civil enforcement
remedy conflicts with the clear congressional intent to make the
ERISA remedy exclusive and is therefore pre-empted." Aetna
Health Inc. v. Davila, 542 U.S. 200, 124 S. Ct. 2488, 2495,
159 L. Ed. 2d 312 (2004); see also Ingersoll-Rand Co. v.
McClendon, 498 U.S. 133, 143-145, 111 S. Ct. 478,
112 L. Ed. 2d 474 (1990).
Both defendants in this case argue that the Plaintiff has
alleged state law causes of action that are preempted by ERISA
because the claims relate to the IBM ERISA plan. The Court will now discuss whether the claims against each
defendant are preempted by ERISA.
1. As to the Claims against IBM
Initially, the Court notes that the complaint fails to specify
any cause of action against IBM. Each of the four causes of
action in the complaint state that they are only against Cendant.
However, the complaint demands damages from IBM as well as
Cendant. Federal Rule of Civil Procedure 8(a)(2) states that a
complaint must include only "a short and plain statement of the
claim showing that the pleader is entitled to relief."
Fed.R.Civ.P. 8(a)(2). "Such a statement must simply `give the
defendant fair notice of what the plaintiff's claim is and the
grounds upon which it rests.'" Swierkiewicz v. Sorema N.A.,
534 U.S. 506, 512, 122 S. Ct. 992, 152 L. Ed. 2d 1 (2002)
(quoting Conley v. Gibson, 355 U.S. 41, 47, 2 L. Ed. 2d 80,
78 S. Ct. 99 (1957)). Here, the complaint gives no notice to IBM as
to the nature of the causes of action and as to what relief the
Plaintiff seeks against that entity. The complaint only states
that it is seeking relief from Cendant. This ground, by itself,
is sufficient to warrant dismissal of the complaint against IBM.
Even with the deficiency in the pleading, the Plaintiff's
complaint clearly seeks benefits under an ERISA plan. In this
regard, the materials the Plaintiff attached to the complaint
expressly state that ERISA applies to such claim. In addition, it
is well-settled that civil actions against employers for employee
benefits that are predicated on common law contract principles are generally preempted by ERISA.
Devlin v. Transportation Communs. Int'l Union, 173 F.3d 94, 101
(2d Cir. 1999); Reichelt v. Emhart Corp., 921 F.2d 425, 431 (2d
Cir. 1990). In determining whether ERISA preempts a state-law
cause of action, "the queries are (a) whether the contract claim
asserted is related to an employee benefit plan, and, if so, (b)
whether there is an exception under ERISA that precludes
pre-emption of the state law [claim]." Devlin, 173 F.3d at 101.
The claim that appears to be most applicable to IBM in the
complaint is the breach of contract claim. The common law
contract claim at issue in this case clearly relates to an
employment benefit plan because it challenges IBM's calculation
of the Plaintiff's entitlement to benefits under the plan.
"Resolution of the claim would necessarily involve interpreting
the plan, its design, and ERISA." Id.; see also Smith v.
Dunham-Bush, Inc., 959 F.2d 6, 10 (2d Cir. 1992) (stating that
"the oral representation underlying this suit deals expressly and
exclusively with the appellant's benefits"). The basis for the
Plaintiff's claim of common law breach of contract is that the
defendants failed to perform the terms of an agreement to credit
service under an ERISA plan. Accordingly, the Court finds that
the claim for common law breach of contract "relates to" the
ERISA plan and is preempted by ERISA. For this additional reason,
the motion by IBM to dismiss the complaint is granted. 2. As to the Claims against Cendant
Turning to the claims asserted against Cendant, when
considering whether ERISA preemption applies, the Court is
mindful that it must look closely at the factual nature of the
claims rather than the state law label that has been applied by
the plaintiff. See Griggs v. E.I. DuPont De Nemours & Co.,
237 F.3d 371, 379 (4th Cir. 2001); Boston Children's Heart
Found., Inc. v. Nadal-Ginard, 73 F.3d 429, 439-40 (1st Cir.
1996) ("The inquiry into whether a state law `relates to' an
ERISA plan or is merely `tenuous, remote, or peripheral' requires
a court to look at the facts of [a] particular case."). The
claims of fraudulent inducement, negligent misrepresentation, and
breach of contract at issue all seek relief on the basis of
Engler's reliance in changing employment from Cendant to IBM. The
Plaintiff argues that the claims against Cendant are not
preempted since they do not seek damages under a Cendant ERISA
plan. On the other hand, Cendant argues that the existence of
IBM's ERISA plan necessarily preempts any state-law claim that
the Plaintiff may have against Cendant.
The Court is not persuaded by either argument. Engler may have
a cause of action under either ERISA or state-law depending on
several circumstances that are not clearly outlined in the
Plaintiff's complaint. While it is clear that Engler's claim
against IBM is preempted under ERISA, it is unclear at this early
stage in the litigation whether Cendant was acting as an ERISA
fiduciary when it informed Engler that IBM would credit his time served under the alleged outsourcing
agreement between IBM and Cendant. If this were the case, the
Plaintiff's claim would certainly be preempted under ERISA since
he could bring an ERISA action against Cendant for
misrepresentation or breach of fiduciary duty. See Mullins v.
Pfizer, Inc., 23 F.3d 663, 669 (2d Cir. 1994); see, e.g.,
Hooven v. Exxon Mobil Corp., 2004 U.S. Dist. LEXIS 5484, at
*43-44 (E.D. Pa. 2004).
On the other hand, if Cendant was not acting as a fiduciary
under an ERISA plan when it allegedly advised the plaintiff, it
is conceivable that the Plaintiff could maintain a state law
cause of action for fraud, misrepresentation, or breach of
contract. Similar state law claims against former employers have
been permitted where the Plaintiff is not seeking damages under
an ERISA plan. See, e.g., Lam v. American Express Co.,
265 F. Supp. 2d 225, 232 (S.D.N.Y. 2003).
With these two possible avenues of relief for the Plaintiff in
mind, the Court is aware that the existence or non existence of
an ERISA remedy is not the test of whether a state cause of
action is preempted. "[T]he availability of a federal remedy is
not a prerequisite for federal preemption." Lister v. Stark,
890 F.2d 941, 946 (7th Cir. 1989). The Supreme Court has noted
that "the policy choices reflected in the inclusion of certain
remedies and the exclusion of others under the federal scheme
would be completely undermined if ERISA-plan participants and
beneficiaries were free to obtain remedies under state law the
Congress rejected in ERISA." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54, 95 L. Ed. 2d 39, 107 S. Ct. 1549
(1987); see also Bernatowicz v. Colgate-Palmolive Co.,
785 F. Supp. 488, 494 (D.N.J. 1992). As previously stated in this order,
the test is whether the state law cause of action "relates to"
ERISA, which can be inferred if the state-law claim "duplicates,
supplements, or supplants the ERISA civil enforcement
remedy. . . ." Aetna Health, 124 S. Ct. at 2495.
Here the allegations in the complaint seek damages for the loss
of severance pay and health benefits, which are two forms of
employee benefits routinely governed by ERISA. In addition, in
order to determine whether Cendant is liable for making a false
representation, the Court would be required to inquire as to
Engler's status under the IBM ERISA plan. Moreover, the Court
would need to determine whether the alleged outsourcing agreement
between Cendant and IBM affected, fell under, or was separate and
apart from the IBM ERISA plan. All of these determinations
sufficiently "relate to" the ERISA plan so as to find ERISA
Furthermore, the state-law claims that the Plaintiff seeks to
bring against Cendant would, in effect, supplement an ERISA
remedy by providing compensation beyond the value of the services
to which the Plaintiff believes he is entitled to. The additional
damages the Plaintiff could be entitled to would include
consequential and punitive damages. For all these reasons, the
Court finds that the Plaintiff's state law causes of action are preempted and dismisses the claims against
Cendant under Rule 12(b)(6).
C. Leave to Amend
When dismissing a case under Rule 12(b)(6), leave to amend is
generally freely granted unless it appears that "the substance of
the claim pleaded is frivolous on its face. . . ." Salahuddin v.
Cuomo, 861 F.2d 40, 42 (2d Cir. 1988) (citing Moorish Science
Temple of Am., Inc. v. Smith, 693 F.2d 987, 990 (2d Cir. 1982)).
As stated above, Engler may have a cause of action against IBM
under ERISA, and therefore the Court grants Engler's request to
amend his complaint with regard to IBM.
Cendant argues that granting the Plaintiff leave to add a claim
under ERISA would be futile because it is not a fiduciary under
the IBM ERISA plan. The Court disagrees. The substance of the
allegations in the complaint could support an ERISA claim against
Cendant for misrepresentation or breach of fiduciary duty. There
is a split among the circuit courts on the issue of whether a
plaintiff may assert the type of claim that the Plaintiff seeks,
namely one that essentially says "`but for' Defendants' wrongful
actions, [he] would have been entitled to the additional benefits
under the plan." Felix v. Lucent Techs., Inc., 387 F.3d 1146,
1158 (10th Cir. 2004).
The Second Circuit, as well as other circuits, have permitted
claims where the plaintiff seeks to show that "but for" the
misrepresentation, the Plaintiff would have been a "participant"
in an ERISA plan. Mullins v. Pfizer, Inc., 23 F.3d 663, 667 (2d Cir. 1994); see also Abraham v. Norcal Waste Sys.,
265 F.3d 811, 824-25 (9th Cir. 2001); Meinhardt v. Unisys Corp.,
74 F.3d 429, 443 (3d Cir. 1996); Swinney v. Gen. Motors Corp.,
46 F.3d 512, 518-19 (6th Cir. 1995); Adamson v. Armco, Inc.,
44 F.3d 650, 654-55 (8th Cir. 1995); Vartanian v. Monsanto Co.,
14 F.3d 697, 702-03 (1st Cir. 1994); Bixler v. Central Pa. Teamsters
Health & Welfare Fund, 12 F.3d 1292, 1300 (3d Cir. 1993);
Christopher v. Mobil Oil Corp., 950 F.2d 1209, 1220-21 (5th
Cir. 1992). But see Felix, 387 F.3d at 1158 (noting the
split in the circuit courts); Raymond v. Mobil Oil Corp.,
983 F.2d 1528, 1535 (10th Cir. 1993); Sanson v. Gen. Motors Corp.,
966 F.2d 618, 619 (11th Cir. 1992); Mitchell v. Mobil Oil
Corp., 896 F.2d 463, 466 (10th Cir. 1990); Stanton v. Gulf Oil
Corp., 792 F.2d 432, 433 (4th Cir. 1986); Sanson v. General
Motors Corp., 966 F.2d 618, 619 (11th Cir. 1992).
The Court also notes that the substance of the allegations in
the complaint could support a possible claim under state law, but
only if it is not related to a claim for benefits under an ERISA
plan. See, e.g., Lam v. American Express Co.,
265 F. Supp. 2d 225, 232 (S.D.N.Y. 2003). In sum, from the substance of the
allegations it appears that a claim against Cendant under either
theory may not be frivolous. Therefore, the Court will permit the
Plaintiff to also amend his complaint against Cendant. III. CONCLUSION
Based on all the foregoing, it is hereby
ORDERED, that the defendants' motion to dismiss the complaint
in its entirety is granted; and it is further
ORDERED, that the complaint is DISMISSED without prejudice;
and it is further
ORDERED, that the Plaintiff is GRANTED leave to file an
amended complaint within 30 days of the date of this order;
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