Lee Gardner v. Heartland Industrial Partners

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 13a0133p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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LEE GARDNER, PETER DECHANTS, DAVID

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LINER, WILLIAM MEYERS, KEITH JUNK, and

MASCO CORPORATION, as Assignee of -

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No. 11-2327

Timothy Wadhams,

Plaintiffs-Appellants, ,>

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v.

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HEARTLAND INDUSTRIAL PARTNERS, LP,

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HEARTLAND INDUSTRIAL ASSOCIATES, LLC,

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TIMOTHY LEULIETTE, and DANIEL

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TREDWELL,

Defendants-Appellees. N

Appeal from the United States District Court

for the Eastern District of Michigan at Detroit.

No. 2:09-cv-13292—Denise Page Hood, District Judge.

Argued: October 3, 2012

Decided and Filed: May 10, 2013

Before: KETHLEDGE, DAUGHTREY, and DONALD, Circuit Judges.

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COUNSEL

ARGUED: Diane M. Soubly, SCHIFF HARDIN LLP, Chicago, Illinois, for Appellants.

James D. Weiss, SIDLEY AUSTIN LLP, Chicago, Illinois, for Appellees. ON BRIEF:

Diane M. Soubly, Allan Horwich, SCHIFF HARDIN LLP, Chicago, Illinois, Michael

L. Pitt, Beth M. Rivers, PITT, McGEHEE, PALMER, RIVERS & GOLDEN, P.C.,

Royal Oak, Michigan, for Appellants. James D. Weiss, Brian J. Gold, SIDLEY

AUSTIN LLP, Chicago, Illinois, Brian A. Kreucher, Gouri G. Sashital, KELLER

THOMAS P.C., Detroit, Michigan, for Appellees.

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No. 11-2327 Gardner, et al.v. Heartland Indus. Partners, et al. Page 2

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OPINION

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KETHLEDGE, Circuit Judge. The question presented in this case is whether

Plaintiffs’ state-law tort claim—for tortious interference with a contract that happens to

be a pension plan subject to the Employee Retirement Income Security Act of 1974—is

“completely preempted” under § 1132(a)(1)(B) of that Act. The district court held that

it was. We disagree and reverse.

We take the facts as set forth in Plaintiffs’ complaint. Defendant Heartland

Industrial Partners, L.P., is a Delaware investment firm that formerly held an ownership

interest in Metaldyne Corporation, an automotive supplier in Michigan. Defendant

Timothy Leuliette is a co-founder of Heartland and was the CEO and Chairman of the

Board of Metaldyne at all relevant times here. Defendant Daniel Tredwell is likewise

a Heartland co-founder and was a Metaldyne Board member during the relevant times.

Plaintiffs are former Metaldyne executives.

In August 2006, Heartland agreed to sell its ownership interest in Metaldyne to

another investment firm, Ripplewood Holdings. Less than two months later, Metaldyne

submitted to the SEC a “Schedule 14A and 14C Information” report that detailed the

terms of the acquisition. The report failed to mention, however, that Metaldyne would

owe Plaintiffs approximately $13 million as a result of the sale to Ripplewood. That

obligation arose under a change-of-control provision in Metaldyne’s “Supplemental

Executive Retirement Plan” (“SERP”), in which Plaintiffs were participants. The SERP

is a plan subject to ERISA.

Ripplewood threatened to back out of the deal when it found out about

the $13 million SERP obligation. In response, Leuliette and Tredwell persuaded

Metaldyne’s Board (of which they were Chairman and a Member, respectively) simply

to declare the SERP invalid. The Board did so on December 18, 2006, though it did not

notify Plaintiffs of that fact at the time. The Ripplewood deal closed less than a month

No. 11-2327 Gardner, et al.v. Heartland Indus. Partners, et al. Page 3

later, on January 11, 2007. Leuliette personally collected more than $10 million as a

result of the deal.

A month after the deal closed, Metaldyne notified Plaintiffs that it had

invalidated the SERP. In response, Plaintiffs filed several lawsuits, including this one

in the Wayne County, Michigan Circuit Court. The suit pled a single state-law claim

against Heartland, Leuliette, and Tredwell, for tortious interference with contractual

relations. The factual basis for the claim was their role in the invalidation of the SERP.

Defendants removed the case to federal court, contending that Plaintiffs’ claim was

“completely preempted” under ERISA. Defendants also filed a motion to dismiss the

case on that ground. Plaintiffs filed a cross-motion to remand the case to state court. In

an order entered September 30, 2010, the district court denied Plaintiffs’ motion to

remand and granted Defendants’ motion to dismiss.

We review the court’s dismissal de novo. The issue before us is jurisdictional:

whether Plaintiffs’ complaint stated a federal question under 28 U.S.C. § 1331, thereby

allowing Defendants to remove the case from state court to federal under 28 U.S.C.

§ 1441. “Ordinarily, determining whether a particular case arises under federal law turns

on the well-pleaded complaint rule[,]” i.e., whether a federal question “necessarily

appears in the plaintiff’s statement of his own claim[.]” Aetna Health Inc. v. Davila,

542 U.S. 200, 207 (2004) (internal quotation marks omitted). Thus, “the existence of a

federal defense normally does not create” federal-question jurisdiction. Id. That is true,

for example, of ERISA’s express-preemption clause, 29 U.S.C. § 1144(a), which

preempts “any and all State laws insofar as they may now or hereafter relate to any

employee benefit plan described in section 1003(a) of this title and not exempt under

section 1003(b)[.]” That a state-law claim is preempted under § 1144(a) is no basis to

remove the case from state court to federal.

But there is an exception to the well-pleaded complaint rule: “when a federal

statute wholly displaces the state-law cause of action through complete pre-emption, the

state claim can be removed.” Davila, 542 U.S. at 207 (brackets and internal quotation

marks omitted). Although ERISA’s express-preemption clause does not have this effect,

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another section of ERISA does. Section 1132(a)(1)(B) provides that “[a] civil action

may be brought . . . by a participant or beneficiary . . . to recover benefits due to him

under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify

his rights to future benefits under the terms of the plan[.]” The Supreme Court has said

that this provision is part of a “civil enforcement scheme” whose “comprehensive” and

“carefully integrated” character “provide[s] strong evidence that Congress did not intend

to authorize other remedies that it simply forgot to incorporate expressly.” Pilot Life Ins.

Co. v. Dedeaux, 481 U.S. 41, 54 (1987) (internal quotation marks and emphasis

omitted). Thus, when a state-law claim by its nature “falls ‘within the scope of’ ERISA

§ [1132](a)(1)(B)[,]” Davila, 542 U.S. at 210, two consequences follow: first, the claim

is deemed to be a federal claim (albeit an invalid one) for purposes of federal-question

jurisdiction and thus removal; and second, the claim is preempted. Id. at 209.

The issue here is whether Plaintiffs’ state-law “tortious interference with

contractual relations” claim is within the scope of § 1132(a)(1)(B) for purposes of this

rule. A claim is within the scope of § 1132(a)(1)(B) for that purpose if two requirements

are met: (1) the plaintiff complains about the denial of benefits to which he is entitled

“only because of the terms of an ERISA-regulated employee benefit plan”; and (2) the

plaintiff does not allege the violation of any “legal duty (state or federal) independent

of ERISA or the plan terms[.]” Id. at 210.

By its plain terms, “[t]he two-prong[ed] test of Davila is in the conjunctive. A

state-law cause of action is preempted by § [1132](a)(1)(B) only if both prongs of the

test are satisfied.” Marin Gen. Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941,

947 (9th Cir. 2009). We choose to focus upon the second requirement here.

Whether a duty is “independent” of an ERISA plan, for purposes of the Davila

rule, does not depend merely on whether the duty nominally arises from a source other

than the plan’s terms. In Davila itself, for example, a Texas statute imposed on HMOs

a duty to “‘exercise ordinary care when making health care treatment decisions.’”

542 U.S. at 212 (quoting Tex. Civ. Prac. & Rem. Code Ann. § 88.002(a)). The plaintiff

there brought a state-law claim against the administrator of his health-care plan, Aetna,

No. 11-2327 Gardner, et al.v. Heartland Indus. Partners, et al. Page 5

alleging that Aetna breached its duty under § 88.002(a) when it failed to provide

coverage for certain prescription drugs. Aetna argued that the claim was completely

preempted under § 1132(a)(1)(B); the plaintiffs responded that their claim was outside

the scope of that subsection because it arose under § 88.002(a). The Supreme Court

disagreed with the plaintiffs, noting that the duty of ordinary care under § 88.002(a)

excluded any “‘obligation on the part of [an HMO] to provide to an insured or enrollee

treatment which is not covered by the health care plan of the entity.’” 542 U.S. at 213

(quoting § 88.002(d)). Thus, Aetna’s duty under the Texas statute was conditioned upon

the terms of the ERISA plan, which meant that the state-law duty was not independent

of the plan for purposes of preemption under § 1132(a)(1)(B).

The court reached the same conclusion in Arditi v. Lighthouse International,

676 F.3d 294 (2d Cir. 2012). There, the plaintiff’s employment agreement with

Lighthouse recited Lighthouse’s obligations to the plaintiff (Arditi) under Lighthouse’s

pension plan. When Lighthouse thereafter denied benefits to Arditi under the plan, he

brought a state-law claim for breach of the employment agreement. The Second Circuit

held that Lighthouse’s duty under the contract was entirely derivative of its duty under

the plan—absent any duty under the plan, there was no duty under the contract—and

thus the contractual duty was not “separate and independent” of the plan for purposes

of preemption under § 1132(a)(1)(B). Id. at 300.

But the contrary was true in Stevenson v. Bank of New York Co., Inc., 609 F.3d

56 (2d Cir. 2009). There, the Bank asked Stevenson, a senior executive, to accept a

transfer to an affiliated bank in Switzerland. Stevenson was a participant in the Bank’s

ERISA plan. Per the plan’s terms, Stevenson would lose that status once he transferred

to the Swiss bank. In order to induce Stevenson to accept the transfer, however, the

Bank promised to maintain Stevenson’s status as a plan participant while he was in

Switzerland. The Bank later reneged on that promise. Stevenson sued for breach of

contract, arguing that the Bank’s promise was independent of the plan. The Second

Circuit agreed: the Bank’s obligation to maintain Stevenson’s status as a participant did

not derive from the plan—indeed, the plan said the opposite—but instead arose from a

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“separate promise” made by the Bank. Id. at 60. It was true, the court noted, that the

Bank’s promise referred to its plan “as a means of establishing the value of that

promise.” Id. at 60–61. But that did not make the promise dependent on the plan for

purposes of complete preemption. For two reasons: first, the plan’s terms were relevant

to the “extent of [Stevenson’s] damages,” not to the existence of the duty itself; and

second, those “damages would be payable from [the Bank’s] own assets, not from the

plans themselves.” Id. at 61.

This case is like Stevenson. Defendants’ duty not to interfere with Plaintiffs’

SERP agreement with Metaldyne arises under Michigan tort law, not the terms of the

SERP itself. And more to the point—unlike the state-law duties in Arditi and Davila,

respectively—Defendants’ duty is not derived from, or conditioned upon, the terms of

the SERP. Nobody needs to interpret the plan to determine whether that duty exists.

Thus, Plaintiffs’ claim is based upon a duty that is “independent of ERISA [and] the plan

terms[.]” Davila, 542 U.S. at 210.

But Defendants argue that the SERP’s terms are relevant to the Defendants’

liability in another way. Under Michigan law, a claim for tortious interference with

contract has three elements: “(1) the existence of a contract, (2) a breach of the contract,

and (3) an unjustified instigation of the breach by the defendant.” Badiee v. Brighton

Area Sch., 265 Mich. App. 343, 366–67 (2005). Defendants say that Metaldyne

elsewhere asserts that it has not breached the SERPs. And thus, Defendants contend, we

must interpret the plan’s terms in order to determine liability—rather than just damages,

as in Stevenson.

The premise of that contention is that a claim is subject to complete preemption

under § 1132(a)(1)(B) if any determination necessary to liability—rather than just the

determination whether the defendant owed a particular duty—requires interpretation of

the plan’s terms. We have our doubts about that premise, given that Davila’s second

requirement for complete preemption is couched in terms of duty (“no legal duty

. . . independent of ERISA or the plan terms”) rather than liability generally. See Davila,

542 U.S. at 210; see also Marin Gen. Hosp., 581 F.3d at 950 (“The question under the

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second prong of Davila is whether the complaint relies on a legal duty that arises

independently of ERISA”). But the issue is immaterial here, because under Michigan

law one party’s complete repudiation of a contract is enough to establish breach. See

Stoddard v. Mfrs. Nat’l Bank of Grand Rapids, 234 Mich. App. 140, 163 (1999) (“Under

the doctrine of repudiation or anticipatory breach, if, before the time of performance, a

party to a contract unequivocally declares the intent not to perform, the innocent party

has the option to . . . sue immediately for the breach of contract”); Thompson v. Auditor

Gen., 261 Mich. 624, 634 (1933) (“If a valid contract is made and entered into, and one

party thereto refused to perform it, such refusal amounts to a breach of contract”). And

Plaintiffs have alleged facts amounting to repudiation here. See Complaint ¶ 41 (“on

December 18, 2006, without stating a reason, or giving plaintiffs any opportunity to be

heard, [the Metaldyne Board] declared the Amended SERP invalid”).

A determination of Defendants’ liability therefore does not require any

interpretation of the SERP’s terms. It is true, of course, that those terms would likely

be relevant in measuring the amount of Plaintiffs’ damages. As shown above, however,

that is beside the point for purposes of Davila’s second prong. Moreover, in this case,

as in Stevenson, any damages “would be payable from [Defendants’] assets, not from

the” plan itself. 609 F.3d at 61. Finally, Heartland’s remaining arguments pertain less

to preemption under § 1132(a)(1)(B) than they do to whether Plaintiffs’ claims are

preempted under § 1144(a)—which is an issue upon which we take no position here.

Davila’s second requirement for preemption under § 1132(a)(1)(B) is not met

here. The district court therefore lacked jurisdiction over the case.

* * *

The district court’s order of September 30, 2010 is reversed, and the case

remanded with instructions for the district court to remand the case to the Wayne County

Circuit Court.