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`Case 3:16-cv-02951-L-KSC Document 10 Filed 03/29/18 PageID.102 Page 1 of 7
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`UNITED STATES DISTRICT COURT
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`SOUTHERN DISTRICT OF CALIFORNIA
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`RONALD ELBLING,
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` Civil No.: 16cv2951-L(KSC)
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`Plaintiff,
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`ORDER GRANTING MOTION TO
`DISMISS WITH LEAVE TO AMEND
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`v.
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`CRAWFORD AND COMPANY,
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`Defendant.
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`In this action alleging denial of benefits under an employee pension benefit plan
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`pursuant to the Employee Retirement Income Security Act ("ERISA"), Defendant
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`Crawford and Company filed a motion to dismiss. Plaintiff filed an opposition and
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`Defendant replied. The Court decides the matter on the papers submitted and without oral
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`argument. See Civ. L. R. 7.1(d.1). For the reasons stated below, Defendant's motion is
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`granted. Plaintiff is granted leave to amend.
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`According to the complaint, Plaintiff was employed by Defendant as an Executive
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`General Adjuster for over fourteen years before retiring at the age of 70. During his
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`employment, Plaintiff entered into Defendant's deferred compensation plan ("DCP").
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`When he retired, Plaintiff had earned over $76,000 worth of long-term incentive credits
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`("LTIC") under the DCP, and was fully vested. Immediately after retiring, Plaintiff
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`began working for Defendant's competitor Vericlaim. Shortly thereafter, he received a
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`letter from Defendant that his LTIC benefits were forfeited because he violated a non-
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`compete provision included in the DCP.
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`Plaintiff unsuccessfully appealed Defendant's decision to deny benefits, and did not
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`pursue a second-level appeal. Instead, he filed the instant action alleging claims for
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`denial of benefits under ERISA, declaratory relief that the non-compete provision is
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`unenforceable under California law, breach of contract, tortious breach of the implied
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`covenant of good faith and fair dealing, and unfair competition in violation of California
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`Business and Professions Code §17200 et seq. ("Unfair Competition Law" or "UCL").
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`The Court has federal question jurisdiction over the ERISA claim pursuant to 28 U.S.C.
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`§1331, and supplemental jurisdiction over the remaining state law claims pursuant to 28
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`U.S.C. §1367(a).
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`Pending before the Court is Defendant's motion to dismiss for failure to state a
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`claim under Federal Rule of Civil Procedure 12(b)(6). A motion under Rule 12(b)(6)
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`tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir.
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`2001). Dismissal is warranted where the complaint lacks a cognizable legal theory.
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`UMG Recordings, Inc. v. Shelter Capital Partners LLC, 718 F.3d 1006, 1014 (9th Cir.
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`2013). Alternatively, the complaint may be dismissed where it presents a cognizable
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`legal theory, yet fails to plead essential facts under that theory. Id. The Court must
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`assume the truth of all factual allegations in the complaint and “construe them in the light
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`most favorable to [the nonmoving party].” Gompper v. VISX, Inc., 298 F.3d 893, 895
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`(9th Cir. 2002). On the other hand, legal conclusions, even if cast in the form of factual
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`allegations, “are not entitled to the assumption of truth.” Ashcroft v. Iqbal, 556 U.S. 662,
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`664 (2009).
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`Defendant argues that the complaint should be dismissed because Plaintiff failed to
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`exhaust administrative remedies by not pursuing a second-level appeal, the ERISA claim
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`lacks merit, and the state law claims are preempted. In his opposition, Plaintiff withdrew
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`Case 3:16-cv-02951-L-KSC Document 10 Filed 03/29/18 PageID.104 Page 3 of 7
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`the second cause of action for declaratory relief, but opposed all other aspects of
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`Defendant's motion.
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`1.
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`Exhaustion of Administrative Remedies
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`To file a court action under ERISA, "a claimant must avail himself or herself of a
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`plan's own internal review procedures." Diaz v. United Agr. Employee Welfare Benefit
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`Plan, 50 F.3d 1478, 1483 (9th Cir. 1995). Failure to exhaust the plan's internal review
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`procedures precludes a court action. Sarraf v. Standard Ins. Co., 102 F.3d 991, 993 (9th
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`Cir. 1996).
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`The DCP includes internal review procedures.1 The pertinent provisions are:
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`§13 Claims Procedures
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`13.1. Presentation of Claim. Any . . . Claimant . . . may deliver to the
`Committee a written claim for a determination with respect to the amounts
`distributable to such Claimant from the Plan. If such a claim relates to the
`contents of a notice received by the Claimant, the claim must be made
`within 60 days after such notice was received by the Claimant. All other
`claims must be made within 180 days of the date on which the event that
`caused the claim to arise occurred. . . .. [¶]
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`13.3. Review of a Denied Claim. Within 60 days after receiving a notice
`from the Committee that a claim has been denied, in whole or in part, a
`Claimant . . . may file with the Committee a written request for review of the
`denial of the claim. Thereafter, the Claimant . . .:
`(a) may review all documents . . .;
`(b) may submit written comments or other documents; and/or
`(c) may request a hearing . . .. [¶]
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`13.6. Legal Action. A Claimant's compliance with the foregoing provisions
`of this §11 is a mandatory prerequisite to the Participant's or beneficiary's
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`The Court takes judicial notice of the DCP because it is referenced in the
`complaint. See Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006). "The court may
`treat such a document as part of the complaint, and thus may assume that its contents are
`true for purposes of a motion to dismiss under Rule 12(b)(6).” Id. (internal quotation
`marks and citation omitted).
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`right to commence any legal action with respect to any claim for benefits
`under this Plan.
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`(Def.'s Ex. A ("DCP") .)
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`It is undisputed that Plaintiff complied with the first step described in §13.1, but
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`did not make the second step described in §13.3. Plaintiff argues that the second step was
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`not mandatory, but optional because section 13.3 states that the Claimant "may" file the
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`request, not that he "must."
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`Defendant counters that §13.6 makes clear that the second step is mandatory. The
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`Court disagrees. First, §13.6 refers to "foregoing provisions of this §11" and not §13.
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`Second, if the Court assumes that the reference to §11 is an error, as it seems inapposite,
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`all that §13.6 imparts is that prior to filing a legal action, a claimant must follow the
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`Claims Procedures. This sheds no light on which of the procedures are mandatory and
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`which are not, but merely clarifies that a legal action cannot be filed before filing a claim.
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`At best, §13.3 is ambiguous. The unqualified use of the word "may" can
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`reasonably lead one to read the provision as optional. On the other hand, it is not
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`unreasonable, as Defendant proposes, that, read in conjunction with §13.6, a claimant
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`must proceed to internal review of a denied claim, if he or she wishes to file a legal
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`plan documents could be fairly read as suggesting that exhaustion is not a
`mandatory prerequisite to bringing suit, claimants may be affirmatively
`misled by language that appears to make the exhaustion requirement
`permissive when in fact it is mandatory as a matter of law.
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`Spindex Phys. Therapy USA Inc. v. United Healthcare of Ariz., Inc., 770 F.3d 1282, 1298
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`(9th Cir. 2014). Under such circumstances, failure to exhaust administrative remedies
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`does not bar the claimant from bringing suit. Id. Accordingly, to the extent Defendant
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`contends this action should be dismissed for failure to exhaust, its motion is denied.
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`/ / / / /
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`Case 3:16-cv-02951-L-KSC Document 10 Filed 03/29/18 PageID.106 Page 5 of 7
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`2.
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`Denial of Benefits
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`Plaintiff's theory of the case is that Defendant violated ERISA by denying his
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`vested LTIC credits as forfeited under DCP's non-compete provision. (DCP §6.4.) It is
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`undisputed that Plaintiff violated the non-compete provision. What is disputed is whether
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`the provision is enforceable. According to Plaintiff, 29 U.S.C. §1053(a) provides
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`minimum vesting standards, which he has met, because he had worked for Defendant for
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`more than 10 years, and was 70 years old when he retired from Defendant's employment.
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`(See Compl. at 3-4.) Section 1053(a) further provides that such vested benefits cannot be
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`forfeited. Plaintiff maintains that the non-compete provision is therefore unenforceable.
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`Defendant does not dispute this, but contends that the DCP is exempt from
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`ERISA's minimum vesting standards. ERISA exempts from minimum vesting standards
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`any "plan which is unfunded and is maintained by an employer primarily for the purpose
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`of providing deferred compensation for a select group of management or highly
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`compensated employees." 29 U.S.C. §1051(2).
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`Plaintiff alleged that participation in the DCP was offered to "highly compensated
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`adjustors." (Compl. at 4.) Furthermore, the DCP states it was intended to "come within
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`the various exceptions and exemptions to [ERISA] for unfunded deferred compensation
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`plan maintained primarily for a select group of management or highly compensated
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`employees . . .." (DCP §14.3.)
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`Based on the foregoing, it does not appear that the minimum vesting standards of
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`§1053(a) apply to the DCP. Defendant's motion to dismiss the first cause of action based
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`on denial of ERISA benefits is therefore granted.
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`Plaintiff requests leave to amend, which Defendant opposes. Rule 15 advises leave
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`to amend shall be freely given when justice so requires. Fed. R. Civ. P. 15(a)(2). “This
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`policy is to be applied with extreme liberality.” Eminence Capital, LLC v. Aspeon, Inc.,
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`316 F.3d 1048, 1051 (9th Cir. 2003) (internal quotation marks and citation omitted).
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`In the absence of any apparent or declared reason – such as undue delay, bad
`faith or dilatory motive on the part of the movant, repeated failure to cure
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`Case 3:16-cv-02951-L-KSC Document 10 Filed 03/29/18 PageID.107 Page 6 of 7
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`deficiencies by amendments previously allowed, undue prejudice to the
`opposing party by virtue of allowance of the amendment, futility of the
`amendment, etc. – the leave sought should, as the rules require, be freely
`given.
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`Foman v. Davis, 371 U.S. 178, 182 (1962). Dismissal without leave to amend is not
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`appropriate unless it is clear the complaint cannot be saved by amendment. See id.
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`Because it may be possible for Plaintiff to allege a viable ERISA claim, leave to amend is
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`granted.
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`3.
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`Preemption of State Law Claims
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`Plaintiff's alternative theory of the case is that state law compels Defendant to pay
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`him the LTICs because the non-compete provision is unenforceable. Defendant counters
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`that the state law claims should be dismissed because they are preempted by ERISA.
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`Plaintiff concedes that the second cause of action for declaratory relief is
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`preempted, and has withdrawn it. (Opp'n at 3.) As to the remaining state law claims,
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`Plaintiff maintains that they are not. He alleges that Defendant breached the DCP by
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`refusing to pay him the LTICs, that he breached the implied covenant of good faith and
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`fair dealing included in his employment contract by depriving him of the benefits under
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`the DCP, and it violated the UCL when it refused to pay the LTICs. (Compl. at 9-16.)
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`Plaintiff seeks damages and/or restitution. (Id. at 16.)
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`There are two strands to ERISA's powerful preemptive force. First, ERISA
`section 514(a) expressly preempts all state laws 'insofar as they may now or
`hereafter relate to any employee benefit plan[,]' 29 U.S.C. § 1144(a) . . .. [¶]
`Second, ERISA section 502(a) contains a comprehensive scheme of civil
`remedies to enforce ERISA's provisions. See 29 U.S.C. § 1132(a). A state
`cause of action that would fall within the scope of this scheme of remedies is
`preempted as conflicting with the intended exclusivity of the ERISA
`remedial scheme, even if those causes of action would not necessarily be
`preempted by section 514(a).
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`Cleghorn v. Blue Shield of Cal., 408 F.3d 1222, 1225 (9th Cir. 2005) (citing Aetna
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`Health, Inc. v. Davila, 542 U.S. 200, 214 n.4 (2004)).
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`Case 3:16-cv-02951-L-KSC Document 10 Filed 03/29/18 PageID.108 Page 7 of 7
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`All of Plaintiff's state law claims seek the payment of benefits under the DCP.
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`Plaintiff concedes that the DCP is "an employee pension benefit plan governed by
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`ERISA." (Compl. at 7.) Accordingly, the state law claims fall within the scope of
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`ERISA's exclusive remedial scheme, which states in pertinent part:
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`A civil action may be brought --
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`(1) by a participant or beneficiary --
`[¶]
`to recover benefits due to him under the terms of his
`(B)
`plan, to enforce his rights under the terms of the plan, . . ..
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`29 U.S.C. §1132(a)(1)(B). Accordingly, the state law claims are preempted by ERISA.
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`To the extent Defendant seeks dismissal of state law claims, its motion is granted.
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`Plaintiff's request for leave to amend is also granted, as Plaintiff may be able to recast his
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`For the foregoing reasons, Defendant's motion to dismiss is granted. If Plaintiff
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`wishes to file an amended complaint, he must do so no later than April 30, 2018.
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`Defendant shall file a response, if any, to the first amended complaint within the time set
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`forth in Federal Rule of Civil Procedure 15(a)(3).
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`IT IS SO ORDERED.
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`Dated: March 28, 2018
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