MEMORANDUM OPINION
THIS MATTER came before the Court for hearing on May 24, 2007 upon Defendant’s Motion to Dismiss this adversary proceeding pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure on the grounds that the Plaintiffs Complaint (the “Complaint”) fails to state a claim upon which relief can be granted. 1 C. Scott Meyers appeared on behalf of Plaintiff Gary E. Shephard (“Shephard”) and William E. Brewer, Jr. appeared on behalf of Defendant John O’Quinn (“O’Quinn”).
The Complaint challenges the discharge-ability, pursuant to Sections 523(a)(4) and (a)(6) of the Bankruptcy Code, of a claim arising from a default judgment entered against O’Quinn by the United States District Court for the Eastern District of Tennessee. The default judgment was entered due to O’Quinn’s failure to respond to, or oppose, the complaint filed by She-phard in that court. The default judgment awarded Shephard a recovery of medical expenses, attorney fees, and costs for O’Quinn’s violation of the Employee Retirement Income Security Act of 1975 (“ERISA”), 29 U.S.C. § 1001, et seq., and also awarded him statutory penalties pursuant to ERISA, as amended by the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”). 2
The Complaint in this adversary proceeding sets forth allеgations concerning *174 the facts that gave rise to the default judgment. The Complaint alleges that O’Quinn’s actions constitute fraud and/or defalcation while acting in a fiduciary capacity, embezzlement, or larceny. As such, the Complaint alleges that the claim held by Shephard arising from the default judgment is nondischargeable in O’Quinn’s bankruptcy pursuant to Section 523(a)(4). The Complaint also alleges that O’Quinn’s actions gave rise to a willful and malicious injury to Shephard. As such, the Complaint alleges that the claim held by She-phard is nondischargeable in O’Quinn’s bankruptcy pursuant to Sectiоn 523(a)(6).
STANDARD FOR MOTION TO DISMISS
In reviewing a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a court must accept as true all of the factual allegations in the complaint as well as the reasonable inferences that can be drawn from them.
Franklin v. Gwinnett County Public Schools,
FACTS
I. Allegations in the Complaint
The pertinent allegations in the Complaint are as follows: 3
a. ERISA Violations 4
1. O’Quinn was the owner and president of OEI. (Complaint, ¶ 6).
*175 2. Shephard was employed by OEI from November 2002 until August 1, 2003. While he was an employee at OEI, She-phard enjoyed certain benefits, including health and dental insurance. Under the terms of Shephard’s employment, he was required to pay a perсentage of the insurance premiums, which were deducted from his paycheck, and the balance of the premiums were to be paid by OEI. (Complaint, ¶ 7).
3. On August 1, 2003, Shephard was informed by O’Quinn that he was being temporarily laid off by OEI. O’Quinn informed Shephard that OEI would continue Shephard’s health and dental coverage through the month of August 2003.
4. Before the end of his term of employment with OEI, Shephard informed O’Quinn that he was scheduled for knee surgery on August 4, 2003. Shephard underwent knee surgery on August 4, 2003. (Complaint, ¶¶ 9,10).
5. Shephard’s knee surgery was eligible for coverage under the group health insurance plan with OEI, and the doсtor, anesthesiologist, hospital, and rehabilitation treatment provider were all approved plan providers. (Complaint, ¶ 10).
6. Shephard received his last paycheck from OEI on August 8, 2003, which covered the pay period ending August 3, 2003. From his gross wages earned during that pay period, a deduction of $59.83 was withheld by OEI and designated on the pay stub as “Health,” and a deduction of $8.50 was withheld and designated as “Dental.” (Complaint, ¶ 11).
7. In the fall of 2003, Shephard received bills from the hospital and various medical professionals stating that he owed approximately $25,000 in unpaid medicаl expenses. (Complaint, ¶ 12).
8. In January of 2004, Shephard was informed by a representative of Blue Cross/Blue Shield that his health insurance coverage had lapsed prior to the knee surgery and that his unpaid medical expenses would not be covered. (Complaint, ¶ 13).
9. The health and dental benefits provided to Shephard from OEI were part of an “employee welfare benefit plan” (the “Plan”) within the meaning of ERISA, 29 U.S.C. § 1002(1). (Complaint, ¶ 20).
10. OEI was both the “administrator” and the “plan sponsor” of the Plan within the meaning of ERISA, 29 U.S.C. §§ 1002(16)(A) and 1002(16)(B), respectively. (Complaint, ¶ 21).
11. OEI was a “fiduciary” of the Plan within the meaning оf ERISA, 29 U.S.C. § 1002(21)(A). (Complaint, ¶ 22).
12. O’Quinn was also a “fiduciary” of the Plan within the meaning of ERISA, 29 U.S.C. § 1002(21)(A). (Complaint, ¶ 23).
13. Shephard was a “participant” of the Plan within the meaning of ERISA, 29 U.S.C. § 1002(7). (Complaint, ¶ 25).
14. OEI and O’Quinn failed to apply amounts deducted from Shephard’s paycheck toward the Plan insurance premiums, but they represented to Shephard that such amounts were being properly deducted and applied. (Complaint, ¶ 26).
15. OEI and O’Quinn failed to pay OEI’s contribution toward Shephard’s dental insurance premiums under the Plan. (Complaint, ¶ 27).
16. The failure of OEI and O’Quinn to pay the contributions denied Shephard benefits to which he was entitled аnd constitute violations of ERISA. As such, *176 these actions were willful and malicious, and constitute fraud and/or defalcation while acting in a fiduciary capacity, embezzlement, or larceny. (Complaint, ¶¶28, 29).
17. The Complaint alleges that the claim arising from the ERISA violations should be deemed to be nondischargeable pursuant to Sections 523(a)(4) and/or (a)(6).
b. COBRA Violations
18. ERISA, as amended by COBRA, imposes a statutory duty on a “plan sponsor” to provide continuation coverage identical to that provided to its current employees. (Complaint, ¶ 31).
19. When Shephard was laid off from his employmеnt, he informed O’Quinn that he wanted to exercise his rights under COBRA to purchase continuation of his health insurance. (Complaint, ¶ 32).
20. Prior to being laid off, Shephard was placed on a waiting list for a kneecap transplant. (Complaint, ¶ 39).
21. O’Quinn confirmed that Shephard’s health insurance would continue uninterrupted and further stated that he and OEI would pay the cost of Shephard’s COBRA insurance as partial compensation for She-phard’s lay off. (Complaint, ¶ 33).
22. Neither O’Quinn nor OEI ever properly notified Blue Cross/Blue Shield of Shephard’s desire to purchase COBRA coverage nor did either of thеm pay any monies for COBRA coverage for She-phard. (Complaint, ¶ 34).
23. The failure by O’Quinn and OEI to provide proper notice was a violation of 29 U.S.C. § 1132(c) and 29 U.S.C. § 1166. (Complaint, ¶ 35).
24. O’Quinn also failed to provide timely responses to Shephard’s inquiries into the status of his health insurance, in violation of 29 U.S.C. § 1132(c). (Complaint, ¶ 36).
25. Because O’Quinn and OEI falsely assured Shephard that he would have COBRA coverage and falsely assured She-phard that they were paying the premiums, Shephard was not aware until later that he did not have COBRA coverage. (Complaint, ¶ 37).
26. O’Quinn and OEI failed to give proper notice tо Shephard of their failure to act, thus violating 29 U.S.C. § 1021(d)(1). (Complaint, ¶ 37).
27. Shephard’s health insurance lapsed entirely. Because of this lapse, Shephard could not obtain a certificate of continuous coverage. When he was subsequently placed on his wife’s health insurance plan, the complications relating to his knee were deemed to constitute a preexisting condition. (Complaint, ¶ 38).
28. Because Shephard’s knee problems had been deemed a preexisting condition by his wife’s insurance provider, Shephard found himself without health insurance coverage for his knee. Because he did not have coverage for his knee, Shephard was dropped from the waiting list for the kneecap transplant. (Complaint, ¶ 39).
29. O’Quinn and OEI breached their duties with respect to the Plan by failing to enroll Shephard in COBRA coverage; by failing to pay the promised premiums; and by failing to alert Shephard of their breaches in a timely manner so that he could obtain alternative health insurance without a lapse in coverage. O’Quinn and OEI did not give proper notice of a qualifying event 5 because the verbal notice that *177 was given was not made in good faith but apparently made merely to lull Shephard into believing that his company health insurance policy was still in effect when O’Quinn and OEI knew that it was not. (Complaint, ¶ 41).
30. As a direct and proximate result of the actions of O’Quinn and OEI, Shephard was injured and suffered damages and is entitled to damages under COBRA. Those actions were willful and malicious, and constitute fraud and/or defalcation while acting in a fiduciary capacity, embezzlement, or larceny. (Complaint, ¶ 42).
31. The Complaint alleges that the claim arising from the COBRA violations should be deemed to be nondischargeable pursuant to Sections 523(а)(4) and/or (a)(6).
II. Sufficiency of the Allegations
Taking the allegations in the Complaint as true, the Court must determine whether they state a claim upon which relief may be granted. In order to do so, it is necessary to consider the alleged ERISA Violations and the alleged COBRA Violations separately. Further, in considering each one, it is also necessary to probe for a sufficient allegation of facts and law that would support either a cause of action under Section 523(a)(4) or Section 523(a)(6).
a. ERISA Violations
(I) Section 528(a)(1)
Shephard’s Complaint seeks a determination that the debt arising from O’Quinn’s alleged ERISA Violations is a nondis-chargeable debt pursuant to Section 523(a)(4), which provides that a Chapter 7 discharge does not discharge debts that are the result of “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” 11 U.S.C. § 523(a)(4). Shephard alleges that the acts committed by O’Quinn amount to fraud or defalcation as that term is understood within the context of Section 523(a)(4), while acting in a fiduciary capacity, embezzlement, or larceny. Leaving aside the acts of embezzlement and larceny, in order for the Court to find that Shephard has stated a claim fоr which relief may be granted pursuant to Section 523(a)(4), it must be possible for the Court to find, based on the facts alleged in the Complaint, that O’Quinn was acting in a fiduciary capacity.
The question that challenges this Court, and has challenged other courts, is whether ERISA can give rise to the type of fiduciary duty contemplated by Section 523(a)(4).
See Navarre v. Luna (In re Luna),
In January of 2005, the Fourth Circuit Court of Appeals explained the parameters of fiduciary status under ERISA in
Phelps v. C.T. Enterprises, Inc.,
[Fiduciary duty under ERISA is not an all-or-nothing concept: that is, “the inclusion of the phrase ‘to the extent’ in § 1002(21)(A) means that a party is a fiduciary only as to the activities which bring the person within the definition. The statutory language plainly indicates that the fiduciary function is not an indivisible one. In other words, a court must ask whether a person is a fiduciary with respect to the particular activity at issue.”
Id.
at 219 (quoting
Coleman v. Nationwide Life Ins. Co.,
Where, for example, an employer is entrusted with employee funds for remittance to a claims administrator, along with any employer contributions, the employer is аcting in a fiduciary capacity under ERISA.
Id.
(citing
Broadnax Mills, Inc. v. Blue Cross & Blue Shield of Va.,
The term “fiduciary capacity” is not defined in the Bankruptcy Code.
In re Hollander,
This specific question was answered in the negative by
Schrimsher v. Nielsen (In re Nielsen),
The Ninth Circuit Court of Appeals, in a more analytical opinion than
Nielsen
or
Bryant,
held to the contrary.
Blyler v. Hemmeter (In re Hemmeter),
In general, a statutory fiduciary is considered a fiduciary for the purposes of § 523(a)(4) if the statute: (1) defines the trust res; (2) identifies the fiduciary’s fund management duties; and (3) imposes obligations on the fiduciary prior to the alleged wrongdoing.
Id.
at 1190 (citing
Windsor v. Librandi,
Luna, cited by O’Quinn fоr the proposition that ERISA cannot give rise to Section 523(a)(4) nondischargeability, does not actually hold that ERISA cannot give rise to a fiduciary status that will qualify under Section 523(a)(4). 8 The ultimate holding of Luna was that the defendants in the case did not qualify as fiduciaries under ERISA because, stated simply, they were responsible for making employer contributions (as opposed to administering employee contributions) to an ERISA employee benefit plan, which responsibility does not, standing alone, give rise to fiduciary status under ERISA. 9 Because the Luna court made this determination, it was not necessary to decide if the defendants met the definition of fiduciary under Section 523(a)(4).
Hunter,
cited by O’Quinn, is more subtle than
Luna
and raises an interesting wrinkle.
Hunter
set out to answer the very question at bar: “The question before us is whether an ERISA fiduciary is necessarily also a fiduciary for the purpose of § 523(a)(4).”
After noting that Philpott was an ERISA fiduciary, the
Hunter
court characterized Philpott’s relationship to the Funds
10
in question as contractual in nature, as opposed to fiduciary.
Id.
at 877. As support for this position, the court noted that, although the corporation agreed to make payments to the Funds, “Philpott did not sign the agreement or in any way guarantee [the corporation’s] performance under the agreement.”
Id.
at 876. Further, “neither [the corporation] nor Phil-pott was in any position to act solely for the benefit of the Funds, which is a fundamental responsibility of ERISA fiduciaries.”
Id.
(citing 29 U.S.C. § 1104(a)(1) and
Kerns v. Benefit Trust Life Ins. Co.,
The
Hunter
court went on to hinge its holding on the rule that “[i]n the § 523(a)(4) context, the fiduciary relationship must preexist ‘the incident creating the contested debt.... It is not enough that the trust relationship spring from the act from which the debt arose.’ ”
Id.
at 877 (citing
In re Dloogoff,
The Court respectfully disagrees with this analysis. The Eighth Circuit did not analyze ERISA in light of the rule that a statute may create Section 523(a)(4) fiduciary status if it “(1) defines the trust res; (2) identifies the fiduciary’s fund management duties; and (3) imposes obligations on the fiduciary prior to the alleged wrongdoing.”
In re Hemmeter,
This Court finds that fiduciary status under ERISA may give rise to the necessary fiduciary status under Section 523(a)(4) for nondischargeability purposes. As such, the Complaint has stated a claim under Section 523(a)(4) upon which relief may be granted for the ERISA Violations.
(ii) Section 523(a)(6)
Section 523(a)(6) provides that a debt will not be dischargeable if it is a debt “for willful and malicious injury by the debtor to another entity or to the property of another entity.” 11 U.S.C. § 523(a)(6). As noted by the Fourth Circuit Court of Appeals, “Congress intended a debt to be nondischargeable under § 523(a)(6) only if the underlying
injury
was a deliberate or intentional one.”
In re Duncan,
b. COBRA Violations
(I) Section 523(a)(1)
The factual allegations in the Complaint pertaining to the COBRA Violations do not involve a misappropriation of any funds contributed by Shephard. Rather, the alleged COBRA Violations consist of a failure on the part of OEI and O’Quinn: (1) to enroll Shephard in COBRA coverage; (2) to pay the promised premiums; and (3) to alert Shephard of their breaches in a timely manner so that he could obtain alternative health insurance without a lapse in coverage. (Complaint, ¶ 41). Therefore, reliance on the Fourth Circuit’s
Phelps
opinion for a finding that O’Quinn acted as an ERISA fiduciary with respect to the COBRA Violations is not as convenient as it was for the ERISA Violations.
11
In light of this difference, the Court is mindful of the Fourth Circuit’s admonition that a court, when determining whether a party acts as a fiduciary under ERISA, “must ask whether a person is a fiduciary with respect to the particular activity at issue.”
Phelps v. C.T. Enterprises, Inc.,
(ii) Section 523(a)(6)
When analyzed pursuant to Section 523(a)(6), the factual allegations with respect to the COBRA Violations suffer from the same infirmity as those with respect to the ERISA Violations. The Complaint states, with respect to the COBRA Violations: “Those actions were willful and malicious.... ” (Complaint, ¶ 42)(emphasis added). The Complaint does not allege that O’Quinn intended to injure Shephard with respect to the COBRA violations. Therefore, the portion of the Complaint alleging nondischargeability of the debt arising from the COBRA Violations pursuant to Section 523(a)(6) does not state a claim upon which relief may be granted and should be dismissed.
CONCLUSION
The Complaint states a claim upon which relief may be granted with respect to both the ERISA Violations and the COBRA Violations pursuant to Section 523(a)(4). The Complaint fails to state a claim upon which relief may be granted with respect to the ERISA and COBRA Violations pursuant to Section 523(a)(6). Therefore, the Motion to Dismiss will be denied in part and granted in part.
This memorаndum opinion constitutes the Courts’ findings of fact and conclusions of law. A separate order will be entered pursuant to Fed. R. Bankr.P. 9021.
ORDER
Consistent with .the memorandum opinion filed contemporaneously herewith, it is ORDERED that the Defendant’s Motion to Dismiss the Plaintiffs Complaint is denied in part and granted in part, as follows:
(1) That portion of the Plaintiffs Complaint that challenges the dischargeability of certain ERISA and COBRA Violations of the Defendant pursuant to Section 523(a)(4) of the Bankruptcy Code states a claim upon which relief may be granted, and the relief requested by the Defendant as to thаt portion of the Complaint is hereby DENIED.
(2) That portion of the Plaintiffs Complaint that challenges the dischargeability of certain ERISA and COBRA Violations of the Defendant pursuant to Section 523(a)(6) of the Bankruptcy Code fails to state a claim upon which relief may be granted, and the relief requested by the Defendant as to that portion of the Complaint is hereby GRANTED.
Notes
. Federal Rule of Bankruptcy Procedure 7012(b) makes Federal Rule of Civil Procedure 12(b)-(h) applicable to adversary proceedings filed in a United States Bankruptcy Court.
. The judgment entered against O’Quinn includes $12,199.00 fоr medical expenses; $16,709.50 for attorney fees; $200.00 for costs; and $90,860.00 in civil penalties, for a total of $119,968.50.
. The Court does not make any factual findings with respect to the facts alleged in the Complaint, but summarizes them for the purpose of analyzing the sufficiency of the allegations.
. The Complaint separates the "claim” into two categories. The first category stems from the failure of O'Quinn’s company, O’Quinn Enterprises, Inc. ("OEI”), to apply the funds withheld from Shephard’s paycheck towards the payment of his insurance premiums. These acts are characterized in the Complaint as "ERISA Violations.” The second category stems from OEI’s failure to comply with certain obligations that it allegedly owed to She-phard with regard to his rights under ERISA as that Act was amended by COBRA. These acts are characterized as "COBRA Violations.” It is helpful to separate them here, as *175 the analysis of the Complaint in the context of the Defendant’s Motion to Dismiss is informed by the distinction, as will be shown.
. The Complaint does not define the term "qualifying event” or explain the term's significance.
. Paragraph 7 of the Complaint alleges "Plaintiff was required to pay a percentаge of the insurance premiums, which were deducted from Plaintiff's paycheck, and the balance of the insurance premiums were to be paid by OEI.” O’Quinn admitted this allegation in his Answer.
. Section 1103 is entitled "Establishment of trust” and provides, inter alia, that “all assets of an employee benefit plan shall be held in trust by one or more trustees.” 29 U.S.C. § 1103(a). Section 1104, entitled "Fiduciary duties,” outlines the fiduciary duties of an ERISA fiduciary.
. In fact, in footnote 2, the court expressly states: "Given our ultimate disposition of this case, we express no opinion regarding whether fiduciary status under ERISA satisfies § 523(a)(4) of the Bankruptcy Code.” Id.
. The
Luna
court even cited the Fourth Circuit's opinion in
Phelps
in order to make the point that “[wjhere the issue is not
employer
contributions (as here), but rather
employee
contributions held by the employer, courts will recognize that the employer meets ERISA's statutory definition of a fiduciary.”
In re Luna,
. The Court defined the several ERISA beneficiaries involved in the case collectively as the ''Funds”
. See supra note 9 and accompanying text.