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Shore v. Charlotte-Mecklenburg Hospital Authority

United States District Court, M.D. North Carolina

August 30, 2019

DELLA SHORE, LISA ENGEL, MARK RACZ, MICHAEL SCHWOB, AND LYDIA WALKER, on behalf of themselves, individually, and on behalf of all others similarly situated, and on behalf of the Atrium Plans, Plaintiffs,
v.
THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY, ATRIUM HEALTH RETIREMENT COMMITTEE, JOHN AND JANE DOES 1–20, MEMBERS OF THE ATRIUM HEALTH RETIREMENT COMMITTEE, EACH AN INDIVIDUAL, MEDCOST, LLC AND MEDCOST BENEFIT SERVICES, LLC, Defendants.

          MEMORANDUM OPINION AND ORDER

          THOMAS D. SCHROEDER, CHIEF DISTRICT JUDGE

         This is a putative class action against The Charlotte-Mecklenburg Hospital Authority, the Atrium Health Retirement Committee (collectively the “Authority”), John and Jane Does 1– 20,[1] MedCost, LLC, and MedCost Benefit Services, LLC (collectively “MedCost”) for alleged noncompliance with the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. (Doc. 1 ¶¶ 1–15.) The action is brought by former Authority employees who allege that they participated in the Authority’s employee benefit plans which should have complied with ERISA requirements. Plaintiffs allege several claims flowing from a contention that the plans are subject to ERISA and seek a declaration they are covered plans and an order that they be brought into compliance with the law. (Id. ¶ 15.)

         Before the court are the motions of the Authority (Doc. 28) and MedCost to dismiss the complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). (Doc. 31.) Defendants move in the alternative to dismiss the claims pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction.[2] (Docs. 28, 31.) MedCost’s brief “adopts and incorporates by reference the facts, authorities, and arguments” set forth in the Authority’s brief in support of its motion to dismiss. (Doc. 32 at 1.) Plaintiffs filed a consolidated response. (Doc. 34.) Because the claims against both the Authority and MedCost fail as a matter of law if the Authority’s plans are governmental plans, resolution of the Authority’s motion will resolve all Defendants’ motions. The motions are fully briefed and ready for decision. (Docs. 30, 32, 34, 39.) For the reasons that follow, Defendants’ motions will be granted and the complaint will be dismissed.

         I. BACKGROUND

         The Authority is a non-profit healthcare conglomerate headquartered in Mecklenburg County, North Carolina. (Doc. 1 ¶ 3.) It established and maintains three employee benefit plans: the Pension Plan of the Charlotte-Mecklenburg Hospital Authority (“Pension Plan”), the Carolinas HealthCare System 401(k) Matched Savings Plan (“401(k) Plan”), and the Carolinas HealthCare System LiveWELL Health Plan (“Health Plan”) (collectively, “the Plans”). (Id.)

         The City of Charlotte created the Authority in 1943 pursuant to the Hospital Authority Act (“HAA”), N.C. Gen. Stat. §§ 131E-15 to 131E-33, which authorizes cities and counties to create hospital authorities “whenever a city council or a county board of commissioners finds and adopts a resolution finding that it is in the interest of the public health and welfare to create a hospital authority.” N.C. Gen. Stat. § 131E-17(a). (Doc. 29-1.) The Authority is registered as a “municipal” body. (Doc. 29-2.)

         The Authority is governed by the Board of Atrium Commissioners (the “Board” or “commissioners”). (Doc. 1 ¶ 41.) The Mayor of Charlotte appointed the Authority’s original commissioners, who took an oath to support the state and federal constitutions. (Doc. 29-1.) To appoint new Board members, the Board submits a list of nominees to the Chairman of the County Commissioners, and the chairman appoints commissioners from that list. (Doc. 1 ¶¶ 49– 51.) The chairman “may require the commissioners to submit as many additional lists of nominees as he or she may desire.” N.C. Gen. Stat. § 131E-18(d). The chairman can remove the commissioners for inefficiency, neglect of duty, or misconduct in office, after notice and a hearing, and is required to remove any commissioner who, after notice and a hearing, is found to have acquiesced in any willful violation by the Authority of state law or of any contract to which the Authority is a party. N.C. Gen. Stat. §§ 131E-22(a)–(b).

         The Authority is granted “all powers necessary or convenient to carry out the purposes of [the Act].” N.C. Gen. Stat. § 131E-23(a). The Authority has the power of eminent domain, N.C. Gen. Stat. § 131E-24(a), may issue tax-exempt bonds, N.C. Gen. Stat. §§ 105–153.5(b)(1)(d), 131E-26(a), 159-81(1), 159-84, is not subject to tax on real property, personal property, or motor fuel, N.C. Gen. Stat. §§ 105-278.1(c)(3)(c), 105-449.88(10), and is not subject to federal or state income tax or state franchise tax. (Doc. 29-3.) The commissioners of the Authority’s board may not be compensated for their services. N.C. Gen. Stat. § 131E-18(f). The Authority is also subject to open meetings laws and public records laws. N.C. Gen. Stat. §§ 143-318.10, 132-1.

         II. ANALYSIS

         A. Motion to Dismiss

         Federal Rule of Civil Procedure 8(a)(2) provides that a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Under Federal Rule of Civil Procedure 12(b)(6), “a complaint must contain sufficient factual matter . . . to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. In considering a Rule 12(b)(6) motion, a court “must accept as true all of the factual allegations contained in the complaint,” Erickson v. Pardus, 551 U.S. 89, 94 (2007) (per curiam), and all reasonable inferences must be drawn in the plaintiff’s favor. Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997). “Rule 12(b)(6) protects against meritless litigation by requiring sufficient factual allegations ‘to raise a right to relief above the speculative level’ so as to ‘nudge[] the[] claims across the line from conceivable to plausible.’” Sauers v. Winston-Salem/Forsyth Cty. Bd. of Educ., 179 F.Supp.3d 544, 550 (M.D.N.C. 2016) (alterations in original) (quoting Twombly, 550 U.S. at 555). Mere legal conclusions are not accepted as true, and “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678.

         Even though matters outside the pleadings are generally not considered on a Rule 12(b)(6) motion, see Fed.R.Civ.P. 12(d); Am. Chiropractic Ass’n, Inc. v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004), “the court can consider ‘documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice’ without converting a motion to dismiss into one for summary judgment.” Plymouth Cty. Ret. Ass'n v. Primo Water Corp., 966 F.Supp.2d 525, 536 (M.D.N.C. 2013) (quoting Sun Chem. Trading Corp. v. CBP Res., Inc., No. 1:01CV00425, 2004 WL 1777582, at *3 (M.D.N.C. July 29, 2004)). A court may consider facts and documents subject to judicial notice, provided that the court construe such facts in the light most favorable to the non-moving party. Zak v. Chelsea Therapeutics Int’l, Ltd., 780 F.3d 597, 607 (4th Cir. 2015). Pursuant to Federal Rule of Evidence 201, a court may “‘judicially notice a fact that is not subject to reasonable dispute,’ provided that the fact is ‘generally known within the court's territorial jurisdiction’ or ‘can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.’” Id. (quoting Fed.R.Evid. 201(b)). The court may take judicial notice of public documents and government documents because their sources “cannot reasonably be questioned,” and a court may take judicial notice of an IRS private letter Ruling because it is a letter from a government agency. Overall v. Ascension, 23 F.Supp.3d 816, 824–25 (E.D. Mich. 2014) (quoting Fed. R. Evid. 201(b)).

         Defendants ask the court to take judicial notice of the Authority’s governing statute and articles of incorporation, the Authority’s registration in the Secretary of State’s website, as well as several statutes, administrative rulings, and an Internal Revenue Service private letter ruling. (Doc. 30.) Plaintiffs do not oppose consideration of these documents whose accuracy cannot reasonably be questioned, and all are publicly available. The court will therefore take judicial notice of them.

         B. Governmental Plan Status

         While ERISA generally applies to employee benefit plans, Congress exempted governmental plans from ERISA’s coverage in part because the concern about the “long-standing abuses and deficiencies in the private pension system” was not present for public retirement plans, and in part based on principles of federalism. Rose v. Long Island R.R. Pension Plan, 828 F.2d 910, 914 (2d Cir. 1987); 29 U.S.C. § 1003(b)(1). A governmental plan is a “plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of the foregoing.” 29 U.S.C. § 1002(32). The parties agree that if the Authority’s plans are governmental plans, then the plans are not subject to ERISA coverage and Plaintiffs’ claims fail as a matter of law. (Doc. 30 at 8–9; Doc. 34 at 5–7.) While the Fourth Circuit has not established a test for determining whether an entity is a governmental plan, other circuits have developed tests for determining whether an entity is a “political subdivision” or an “agency or instrumentality” under ERISA.

         1. Political Subdivision

         To determine whether an entity is a “political subdivision” under federal law, courts routinely apply the test from NLRB v. Natural Gas Utility District of Hawkins County,402 U.S. 600, 604– 05 (1971). See Smith v. Reg’l Transit Auth., 827 F.3d 412, 417 (5th Cir. 2016); Koval v. Washington Cty. Redevelopment Auth.,574 F.3d 238, 241 (3d Cir. 2009); Shannon v. Shannon,965 F.2d 542, 547–48 (7th Cir. 1992); Rose, 828 F.2d at 916. “Because ERISA is a federal statute, the term ‘political subdivision’ must be interpreted by reference to federal law, in the absence of clear legislative intent to the contrary.” Rose, 828 F.2d at 915 (citing Hawkins, 402 U.S. at 602–03). Both parties agree that the Hawkins test should be used to determine whether the Authority constitutes a “political subdivision.”[3] (Doc. 30 at 9–10; Doc. 34 at 6.) This test provides that “political subdivisions” are “entities that are either (1) created directly by the state, so as to constitute departments or administrative arms of the government, or (2) administered by individuals who are responsible to public officials or to the general electorate.” Smith, 827 F.3d at 417 (quoting Hawkins, 402 U.S. at 604–05). The test ...


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