Milby v. Liberty Life Assurance Co.
102 F. Supp. 3d 922
W.D. Ky.2015Background
- Samantha Milby, a former UMC employee, received long-term disability (LTD) benefits under an employee welfare benefit plan issued/underwritten by Liberty; Liberty terminated benefits on Feb. 21, 2013.
- Milby sued in Jefferson County Circuit Court asserting state-law claims (breach of contract, common-law and statutory bad faith, negligence per se); Liberty removed based on ERISA complete preemption and federal-question jurisdiction.
- Central factual dispute for jurisdiction: whether University Medical Center, Inc. (UMC) is a state "governmental" employer (political subdivision / agency or instrumentality) such that its employee benefit plan is exempt from ERISA.
- UMC is a private nonprofit formed by private incorporators; it contracted to operate U of L Hospital, has separate finances and employees, negotiates its own benefits, and its bylaws give U of L influence (ex‑officio chairman, role in nominations) but not unilateral appointment or removal control.
- The district court applied three tests used by other circuits (Hawkins County political‑subdivision test, IRS multi‑factor test, and the employment‑relationship test) and concluded UMC is not a political subdivision, agency, or instrumentality of Kentucky.
- Because UMC is not a governmental employer, the LTD plan is governed by ERISA; the court held Milby’s state‑law claims are completely preempted by 29 U.S.C. § 1132(a)(1)(B), so federal-question jurisdiction is proper. The court denied remand and denied Milby’s motion for oral argument; it granted Liberty leave to file a surreply.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the LTD plan is exempt from ERISA as a "governmental plan" (i.e., whether UMC is a political subdivision or agency/instrumentality of Kentucky) | UMC is effectively a public entity because of close ties to U of L and state (U of L President appoints nominating committee, UMC subject to Open Records Act) | UMC is a private nonprofit: formed privately, finances and employees separate, U of L lacks unilateral appointment/removal/control over board or daily operations | UMC is not a political subdivision/agency/instrumentality under Hawkins County, IRS factors, or employment‑relationship tests; not a governmental employer under ERISA |
| Whether ERISA § 1132(a)(1)(B) completely preempts Milby’s state‑law claims | Milby contends the plan is governmental (so ERISA exemption applies) and her claims are state law | Liberty contends ERISA governs the plan and § 1132(a)(1)(B) provides the exclusive civil remedy for benefits denials | Because the plan is governed by ERISA, Milby’s claims (breach, bad faith, negligence per se) are completely preempted by § 1132(a)(1)(B) and removable to federal court |
| Whether the state‑law claims allege legal duties independent of ERISA/plan terms | Milby argues some duties (e.g., statutory medical licensing duties) are independent | Liberty argues each claim depends on rights/duties created by the ERISA plan and denial of benefits | Court held Milby did not allege duties independent of ERISA or the plan; claims fall within § 1132(a)(1)(B) scope |
| Procedural motions: hearing/oral argument and Liberty’s leave to file surreply | Milby requested oral argument on remand motion | Liberty sought leave to file a surreply to address new authority in Milby’s reply | Court denied Milby’s request for oral argument (briefing sufficient) and granted Liberty leave to file a surreply (it considered the surreply) |
Key Cases Cited
- Exxon Mobil Corp. v. Allapattah Servs., 545 U.S. 546 (federal courts are courts of limited jurisdiction)
- Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375 (federal jurisdictional limits)
- Aetna Health Inc. v. Davila, 542 U.S. 200 (ERISA § 1132(a)(1)(B) complete preemption doctrine)
- Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (ERISA preemption/conversion of state claims)
- NLRB v. Natural Gas Utility Dist. of Hawkins Cnty., 402 U.S. 600 (test for political‑subdivision status used by several circuits)
- Gardner v. Heartland Indus. Partners, 715 F.3d 609 (6th Cir.) (two‑part Davila formulation: benefits denial tied to plan and absence of independent legal duty)
- Shannon v. Shannon, 965 F.2d 542 (7th Cir.) (ERISA interpretation and governmental‑plan exemption analysis)
- Rose v. Long Island R.R. Pension Plan, 828 F.2d 910 (2d Cir.) (IRS factors and agency/instrumentality analysis)
- FiveCAP, Inc. v. NLRB, 294 F.3d 768 (6th Cir.) (board‑control/removal analysis under Hawkins County test)