Sikora and Associates v. Storey

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 07-1402

LINDA BROWN; BETH ABERNATHY,

Plaintiffs,

v.

SIKORA AND ASSOCIATES, INCORPORATED,

Defendant and Third Party Plaintiff ! Appellant,

and

FIDELITY GROUP, INC.,

Defendant,

v.

BOB W. STOREY,

Third Party Defendant ! Appellee,

and

STEVEN E. EDWARDS; MICHAEL SAMUELSON; DON YOST,

Third Party Defendants.

Appeal from the United States District Court for the District of

South Carolina, at Greenville. Henry F. Floyd, District Judge.

(6:04-cv-00579-HFF)

Argued: March 18, 2008 Decided: April 16, 2008

Before WILKINSON and MOTZ, Circuit Judges, and William L.

OSTEEN, Jr., United States District Judge for the Middle District

of North Carolina, sitting by designation.

Affirmed by unpublished per curiam opinion.

ARGUED: Brian David Black, OGLETREE, DEAKINS, NASH, SMOAK &

STEWART, P.C., Greenville, South Carolina, for Appellant. William

Alexander Coates, ROE, CASSIDY, COATES & PRICE, P.A., Greenville,

South Carolina, for Appellee. ON BRIEF: Michael M. Shetterly,

OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C., Greenville, South

Carolina; Mark A. Cullen, THE CULLEN LAW FIRM, P.A., West Palm

Beach, Florida, for Appellant. Ella S. Barbery, ROE, CASSIDY,

COATES & PRICE, P.A., Greenville, South Carolina, for Appellee.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:

When their health insurance provider, Fidelity Group, Inc.

(“Fidelity”), failed to compensate Linda Brown and Beth Abernathy

for medical costs, they brought ERISA claims against both Fidelity

and their employer, Sikora and Associates, Inc. (“Sikora”), for

breach of fiduciary duty. Sikora, in turn, brought a variety of

third-party claims under state law against Bob Storey, who Sikora

alleged was the alter ego of Fidelity. In its amended complaint,

Sikora asserted ERISA as the basis of federal jurisdiction under 28

U.S.C. § 1331 (2000) and claimed supplemental jurisdiction for its

state-law claims. The district court granted summary judgment to

Storey, finding that Sikora lacked standing to bring an action

against him under ERISA. The court also declined to exercise

supplemental jurisdiction over the state law claims, which it

dismissed without prejudice. Sikora appeals. We affirm.

I.

In 1999, Sikora secured group health insurance for its

employees from Magna Corporation. At that time, Bob Storey ran

Magna; in 2000, he incorporated the Fidelity Group and converted

the Sikora’s ERISA plan from the Magna Plan to the Fidelity Group

Plan. In May 2000, Sikora employees began complaining that

Fidelity was failing to pay health care claims; by August 2000, all

benefit payments ceased. On March 26, 2001, Fidelity formally

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notified Sikora that the plan was terminated effective March 16,

2001. Sikora immediately secured another insurance provider.

On February 25, 2004, two Sikora employees, Brown and

Abernathy, filed an ERISA action against Fidelity and Sikora,

seeking benefits due under their ERISA group health plan. Sikora

filed an answer, cross-claim, and third-party complaint, pleading

diversity jurisdiction as the basis for third-party claims against

Storey and others for failure to pay benefits, breach of

obligations to Sikora, fraud, and negligent misrepresentation under

state law. Storey moved to dismiss Sikora’s complaint for lack of

personal jurisdiction as well as improper joinder of parties under

Rule 14. The district court denied Storey’s motion for lack of

personal jurisdiction, but granted the Rule 14 motion, permitting

Sikora leave to amend its complaint.

Sikora then filed an amended answer and cross-claim,

eliminating reliance on diversity jurisdiction and asserting ERISA

as the basis for federal jurisdiction. Shortly thereafter, Brown

and Abernathy settled their claims with Sikora and named Sikora as

assignee for their ERISA benefits. After completing discovery,

Storey moved for summary judgment. The district court granted

Storey’s motion, reasoning that Sikora lacked standing to bring the

ERISA claim. The court then declined to exercise supplemental

jurisdiction over Sikora’s state law claims, which it dismissed

without prejudice.

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II.

Only “participants,” “beneficiaries,” or “fiduciaries” may

bring civil actions under ERISA. 29 U.S.C. § 1132(a) (2000); see

also Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S.

1, 21 (1983) (noting that “[t]he express grant of federal

jurisdiction in ERISA is limited to suits brought by certain

parties . . . as to whom Congress presumably determined that a

right to enter federal court was necessary to further the statute’s

purposes”). Sikora contends that the district court erred in

finding that it lacked standing to assert its claims under ERISA.

Sikora asserts standing under ERISA on two independent grounds.

First, Sikora argues that, as the assignee of Brown and Abernathy,

it stands in their shoes as participant and beneficiary of the

ERISA plan, thereby possessing derivative standing. Second, Sikora

alleges that it assumed the responsibility of a fiduciary under the

ERISA plan and therefore can bring claims pursuant to § 1132(a).

We briefly discuss each argument in turn.

A.

Although we have never addressed the question of derivative

standing for ERISA benefits, our sister circuits have consistently

recognized such standing when based on the valid assignment of

ERISA health and welfare benefits by participants and

beneficiaries. See City of Hope Nat. Med. Ctr. v. Healthplus,

Inc., 156 F.3d 223 (1st Cir. 1998); I.V. Servs. of America, Inc. v.

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Trustees of the American Consulting Engineers Council Ins. Trust

Fund, 136 F.3d 113 (2d Cir. 1998); Cagle v. Bruner, 112 F.3d 1510

(11th Cir. 1997); Lutheran Med. Ctr. v. Contractors, Laborers,

Teamsters and Engineers Health & Welfare Plan, 25 F.3d 616 (8th

Cir. 1994); Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272

(6th Cir. 1991); Kennedy v. Conn. Gen. Life Ins. Co., 924 F.2d 698

(7th Cir. 1991); Hermann Hosp. v. MEBA Medic. & Benefits Plan, 845

F.2d 1286 (5th Cir. 1988); Misic v. Building Serv. Employees Health

& Welfare Trust, 789 F.2d 1374 (9th Cir. 1986).

These cases represent a careful balance of competing concerns,

in part grounded on the recognition that extending derivative

standing to health care providers serves to further the explicit

purpose of ERISA in a number of distinct ways. See, e.g., Misic,

789 F.2d at 1377 (noting that extending derivative standing to

health care providers “results in precisely the benefit the trust

is designed to provide and the statute is designed to protect,”

while also “making it unnecessary for health care providers to

evaluate the solvency of patients before commencing medical

treatment” or forcing patients to “pay potentially large medical

bills and await compensation from the plan”).

The district court seemed to believe that courts have

permitted “assignment of benefits under ERISA only where the

claimant is a health care provider” (emphasis added). In fact,

entities other than healthcare providers have been permitted

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derivative standing as ERISA assignees. See Tango Transp. v.

Healthcare Fin. Servs., 322 F.3d 888, 893-94 (5th Cir. 2003)

(holding that a collection agency possessed derivative standing as

an assignee of a healthcare provider, who itself possessed

derivative standing as an assignee of the beneficiary of the ERISA

plan); Yampol v. Mut. Life Ins. Co. of N.Y., 840 F.2d 421, 427 (7th

Cir. 1988) (holding that an insurance company possessed derivative

standing as an assignee of a fiduciary of a trust to sue under 29

U.S.C. § 1132(a)(2)). These cases too, however, reflect a careful

consideration of the particular facts presented.

Thus, it may be that in the proper case assignees other than

health care providers have derivative standing under ERISA. We

need not here resolve that question, because this is clearly not

such a case. When assignees of ERISA benefits have been found to

have derivative standing, they could have sued the actual ERISA

participants, who would then have clearly had standing to sue for

the unpaid ERISA benefits. Thus permitting derivative standing in

these cases would further the purposes of ERISA “to protect the

interests of participants in employee benefit plans and their

beneficiaries.” Marks v. Watters, 322 F.3d 316, 322 (4th Cir.

2003). In the case at hand, Sikora could never have sued the

actual participants Brown and Abernathy to recover their ERISA

benefits; thus, allowing Sikora derivative standing does nothing to

further the purposes of the statute because it offers no benefits

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for the ERISA participants. Moreover, examination of Sikora’s

amended complaint makes clear that, unlike the typical party

permitted derivative standing, Sikora has claimed derivative

standing not out of any concern with the participants’ unpaid ERISA

benefits, but in order to obtain federal subject matter

jurisdiction over Sikora’s independent state-law claims against

Storey. In its amended complaint, Sikora seeks a declaration that

Storey is the alter ego of Fidelity and thus “personally liable for

the acts and omissions of Fidelity,” particularly a $3,733,693.41

default judgment entered in favor of Sikora against Fidelity in a

related ERISA suit. Without expressing any opinion regarding the

validity of these claims, we do not believe that they should be

smuggled into federal court under the jurisdictional guise of Brown

and Abernathy’s assignment of ERISA benefits.

B.

In the alternative, Sikora argues that it possesses standing

for its ERISA claims as a fiduciary under the ERISA plan. But, as

the district court correctly noted, Sikora repeatedly asserted in

its pleadings that it was not a fiduciary of the plan. “The

general rule is that ‘a party is bound by the admissions of his

pleadings.’” Lucas v. Burnley, 879 F.2d 1240, 1242 (4th Cir. 1989)

(quoting Best Canvas Prods. & Supplies v. Ploof Truck Lines, 713

F.2d 618, 621 (11th Cir. 1983)). Sikora presents no compelling

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legal argument why this rule should now be abandoned, and we

decline to do so.

III.

Having found that Sikora lacked standing for its ERISA claims,

the district court declined to exercise supplemental jurisdiction

over the state-law claims. See 28 U.S.C. § 1367(c) (2000). Sikora

contends that in this ruling the district court abused its

discretion, because Sikora had pled the facts necessary to

establish diversity jurisdiction in its original complaint. Sikora

also argues that the court should have permitted it to remedy any

jurisdictional defects pursuant to 28 U.S.C. § 1652 (2000), which

states that “[d]efective allegations of jurisdiction may be

amended, upon terms, in the trial or appellate courts.”

Sikora’s arguments are unpersuasive. Sikora is certainly

correct that § 1652 empowers a court to permit a party to remedy

jurisdictional defects, but such corrections occur at the

discretion of the court. Although Sikora did plead the required

elements of diversity jurisdiction in its original complaint, in

its amended complaint, Sikora eliminated this jurisdictional basis,

instead asserting ERISA and supplemental jurisdiction. “As a

general rule, ‘an amended pleading ordinarily supersedes the

original and renders it of no legal effect.’” Young v. City of

Mount Ranier, 238 F.3d 567, 572 (4th Cir. 2001) (quoting In re

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Crysen/Montenay Energy Co., 226 F.3d 160, 162 (2d Cir. 2000)). The

district court thus did not abuse its discretion in declining to

exercise supplemental jurisdiction over Sikora’s state-law claims.

IV.

For the foregoing reasons, the judgment of the district court

is

AFFIRMED.

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