STATE OF MICHIGAN IN THE 17th CIRCUIT COURT FOR KENT COUNTY

JMJ, INC.; and PREFERRED UNITED PLANS "AL TERNA TE FUNDING PLAN" FOR EMPLOYEES OF JMJ, INC.,

Plaintiffs,

vs.

SECUREONE BENEFIT ADMINISTRATORS, INC.,

Defendant. I

Case No. 16-03801-CKB

HON. CHRJSTOPHER P. YATES

OPINION AND ORDER GRANTING DEFENDANT SECUREONE BENEFIT ADMINISTRATORS, INC. 'S MOTION FOR SANCTIONS

Although this dispute about benefits under an employee heal th benefit plan has landed in the

United States District Court for the Western District of Michigan as a claim based on the Employee

Retirement Income Security Act ("ERJSA"), see 29 USC 1001 , et seq, it took a detour through the

Michigan state-court system, where the plaintiffs initially presented a claim for common-law breach

of contract. On December 9, 2016, the Court rendered an oral opinion explaining why the breach-of-

contract claim was preempted by ERISA and granting summary disposition to Defendant SecureOne

Benefit Administrators, Inc. ("SecureOne") pursuant to MCR 2.116(C)(8). That decision, however,

left unresolved SecureOne's request for sanctions under MCR 2. l l 4(E) and MCL 600.2591 . Thus,

on March 9, 2017, the Court heard oral argument on the outstanding motion for sanctions. Now, as

a result of the plaintiffs' steadfast refusal to concede that their breach-of-contract claim was subject

to ERJSA preemption, the Court must impose sanctions in the form of reasonable attorney fees upon

the plaintiffs.

I. Factual Background

This controversy traces its roots to a motorcycle accident in July 2015 involving Mick Suter,

the president of Plaintiff JMJ, Inc. ("JMJ"). See First Amended Complaint, if 14. By all accounts,

Suter suffered serious injuries and incwTed more than $67,000 in medical costs. Id. Consequently,

Suter submitted his medical bills to Defendant SecureOne, id., if 15, but SecureOne - in its capacity

as third-party administrator for the JMJ employee health benefit plan 1 - refused to process the claim

or pay Suter' s medical expenses. Id. , if 16. SecureOne reasoned that Suter had sustained his injuries

and resulting medical expenses because of his participation in a hazardous hobby or activity that took

his claim outside the coverage of the JMJ plan.

Mick Suter responded to SecureOne's inaction by appealing to Charles Mead in his capacity

as the plan administrator for the JMJ employee health benefit plan. See First Amended Complaint,

iii! 4, 18. Mead, who apparently reports to Suter at JMJ, concluded that Suter' s bills were "eligible

to be paid under the terms of the Plan." Id ., if 19. SecureOne nevertheless held firm, insisting that

Suter had no right under the plan to benefits for his motorcycle injuries. Id., if 20. Faced with that

intractable disagreement between Mead as the plan administrator and SecureOne as the third-party

administrator of the JMJ plan, both JMJ and the JMJ plan filed suit against SecureOne, presenting

a common-law claim for breach of contract, see id. , if 22, and requesting an order that SecureOne

"process pursuant to the terms of the Plan all medical bills submitted by or on behalf of Mick Suter

for the applicable plan year . . . . " See id., Prayer for Relief. In other words, the plaintiffs framed

the dispute as a straightforward breach-of-contract claim.

1 In formal parlance, the plan is called the Preferred United Plans "Alternate Funding Plan" for Employees of JMJ, Inc. For ease of reference, however, the Court shall simply refer to that party as the "JMJ employee health benefit plan" or the "JMJ plan."

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At the initial case conference conducted in chambers on September 14, 2016, the Court made

the suggestion that the common-law claim for breach of contract appeared to be preempted by the

plain language of ERIS A. Counsel for Defendant SecureOne agreed, expressing an intention to seek

summary disposition on a theory ofERISA preemption. Plaintiffs' counsel had reservations, so the

Court left the parties to raise the issue of ERIS A preemption as they saw fit. In the fullness oftime,

both sides moved for summary disposition. SecureOne relied upon, inter alia, ERISA preemption

in its motion filed on September 30, 2016, while the plaintiffs filed their own motion on October 28,

2016, demanding that the Court resolve the dispute on breach-of-contract grounds. But the issue of

ERISA preemption stood as an obstacle to resolution of the plaintiffs' claim on any state-law theory.

On December 9, 2016, the Court heard oral argument and then ruled from the bench that the

plaintiffs' claim for breach of contract plainly was preempted by ERISA. The Court cited decisions

from the United States Supreme Court that rendered that outcome indisputable. Indeed, as the Court

explained, resolution of the plaintiffs ' claim for benefits under the JMJ plan required consideration

of the JMJ plan's terms, so the preemptive force ofERISA was inescapable. In the aftermath of that

ruling, Defendant SecureOne pressed for sanctions under MCR 2.114 because ERISA preemption

was so obvious that the plaintiffs and their counsel could not be excused for failing to concede that

point and recast their claim under ERISA.

After another round of briefing, the Court took up Defendant SecureOne's sanctions request

at an oral argument on March 9, 2017. SecureOne contended that the plaintiffs' position on ERISA

preemption was not only frivolous, but also costly, because it necessitated a round of motions that

never should have been filed. In contrast, the plaintiffs insisted that at least two decisions from the

lower federal courts lent support to their opposition to ERISA preemption. Upon careful review, the

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Court concludes that no federal decision - published or unpublished - furnishes any support for the

plaintiffs' argument against ERISA preemption. Accordingly, the Court has no choice but to grant

SecureOne' s request for sanctions under MCR 2. 114.

II. Legal Analysis

Sanctions are available under Michigan law against attorneys and their clients under several

Michigan Court Rules. &.&, MCR 2.1 14(E) (sanctions for friYolous filings) & 2.625(A)(2) ("costs

shall be awarded" for frivolous actions or defenses). Additionally, the Court has " inherent authority

to impose sanctions on the basis of the misconduct of a party or an attorney." Persichini v William

Beaumont Hosp, 238 Mich App 626, 639 (1999); see also Maldonado v Ford Motor Co, 476 Mich

3 72, 3 76 (2006). A party or attorney can be sanctioned for filing a frivolous claim or defense, MCR

2.114(E), which includes cases where: " (1) the party's primary purpose was to harass, embarrass or

injure the prevailing party; (2) the party had no reasonable basis to believe the underlying facts were

true; or (3) the party's position was devoid of arguable legal merit." Jerico Cosntr, Inc v Ouadrants,

Inc, 257 Mich App 22, 35-36 (2003), citing MCL 600.2591 . A good-faith argument cannot give rise

to sanctions, however, just because it is ultimately rejected by a court. Jerico Constr, 257 Mich App

at 36. Applying these standards, the Court must decide whether the plaintiffs' refusal to concede that

ERISA preempted their breach-of-contract claim requires the imposition of sanctions.

The preemptive effect ofERISAhas been well-defined by the United States Supreme Court.

Because "(t]he purpose ofERISA is to provide a uniform regulatory regime over employee benefit

plans," Aetna Health Inc v Davila, 542 US 200, 208 (2004), "ERISA includes expansive pre-emption

provisions, which are intended to ensure that employee benefit plan regulation would be ' exclusively

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a federal concern."' Id. The preemption provision set forth in 29 USC 1144(a), for example, states

that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any

employee benefit plan[.]" This language seems to preclude states from enacting laws on the subject

of employee benefits, but the United States Supreme Court has given that language a truly expansive

reading by holding that common-law causes of action - just like state statutes - may be preempted

by 29 USC 1144(a) if they '"relate to ' an employee benefit plan." Pilot Life Ins Co v Dedeaux, 481

US 41, 4 7-48 (1987). Moreover, the United States Supreme Court has given the phrase "relate to"

in ERISA-preemption analysis a '" broad common-sense meaning, such that a state law"relate[s] to"

a benefit plan "in the normal sense of the phrase, if it has a connection with or reference to such a

plan.""' Id. at 47. According to SecureOne, the clear import of these rulings from the United States

Supreme Court should have led the plaintiffs to concede that their common-law claim for breach of

contract was preempted by ERISA. SecureOne maintains that their failure to make that concession

engendered unnecessary motion practice.

To fend off Defendant SecureOne's request for sanctions, the plaintiffs cite to two decisions

issued in the federal-court system, Gardner v Heartland Industrial Partners, LP, 715 F3d 609 (6th Cir.

2013), and Erlandson v Liberty Life Assurance Co of Boston, 320 F Supp 2d 501 (ND Texas 2004),

that purportedly lend support to their arguments against preemption. The Court finds the plaintiffs'

reliance upon those two decisions entirely misplaced. Both of those rulings focus exclusively upon

so-called "complete preemption" under 29 USC 11 32,2 as opposed to so-called "conflict preemption"

2 ERISA includes a provision, see 29USCl132(a)(l)(B), that not only authorizes a suit by a beneficiary to recover benefits from a plan, Metropolitan Life Ins Co v Taylor, 481 US 58, 62-63 (1987), but also provides an exclusive federal cause of action for resolution of such disputes. Id. at 63. This complete-preemption provision converts even well-pleaded state-law claims for breach of contract into ERISA claims. See Aetna Health, 542 US at 207-208.

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under 29 USC 1144. See Gardner, 715 F3d at 612-613; Erlandson, 320 F Supp 2d at 506. Nothing

in either decision cited by the plaintiffs defines the preemptive scope of29 USC 1144, which applies

to the type of contest in the instant case between a plan administrator and a third-party administrator

over the availability of benefits under the plan.

Jn a general sense, the United States Supreme Court has made clear that the type of common­

law cause of action for breach of contract asserted in the instant case falls prey to ERISA preemption

under 29 USC 1144(a) because the common-law claim is "based on alleged improper processing of

a claim for benefits under an employee benefit plan(.]" Pilot Life, 481 US at 48. More specifically,

federal appellate courts have uniformly reasoned that the preemptive effect ofERISA as defined by

29 USC 1144(a) reaches common-law claims for breach of contract asserted by plan administrators

against third-party administrators for "denying claims that were covered" under the plans. Tri-State

Machine, Inc v Nationwide Life Ins Co, 33 F3d 309, 313-314 (4th Cir 1994). ERISA preemption

necessarily applies because such theories "are essentially complaints about the processing of claims

under an employee benefit plan and, therefore, relate to the plan in the common sense meaning of

that phrase." Id. at 314. Based upon the rulings governing precisely the type of common-law claim

that the plaintiffs attempted to advance in this case, the Court must conclude that the plaintiffs ' claim

was "devoid of arguable legal merit." Jerico Cosntr, 257 Mich App at 35-36.

Given the Court' s conclusion that sanctions must be imposed, the Court must next determine

the appropriate form of sanctions. In devising a remedy, the Court shall attempt to put the defendant

in the position it would have occupied "absent the misconduct" of the plaintiffs. See Persichini, 238

Mich App at 643. According to MCR2.114(E), the Court must award the defendant "the reasonable

expenses incurred because of the filing of the document, including reasonable attorney fees[,]" when

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a pleading or motion is signed and submitted "in violation of this rule[.]" As our Court of Appeals

has ruled, "( c ]osts incurred for having to file a motion for sanctions are included" in sanctions that

the Court may impose, Maryland Casualty Co v Allen, 221 Mich App 26, 32 (1997) (applying MCR

2.114 ), but sanctions should only include "reasonable attorney fees," as opposed to all of the attorney

fees incurred by the defendant. See In re Attorney Fees and Costs, 233 Mich App 694, 705 (1999).

Additionally, the plaintiffs are entitled to an evidentiary hearing on the matter of sanctions. B & B

Investments Group v Gitler, 229 Mich App 1, 15-17 ( 1998). Thus, the Court shall set an evidentiary

hearing to address the reasonable expenses, including attorney fees, that the defendant should receive

as the sanction for the plaintiffs' persistence in pursuing a common-law claim for breach of contract

that manifestly was preempted by ERISA.3

IT IS SO ORDERED.

Dated: May 8, 2017 HON. CHRISTOPHER P. YATES (P41017) Kent County Circuit Court Judge

3 To be clear about the scope ofreliefavailable to Defendant SecureOne, the Court notes that the plaintiffs cannot be sanctioned merely for initiating litigation against SecureOne. Indeed, ERISA preemption simply dictates that the plaintiffs should have styled their claim as one under ERISA, as opposed to Michigan common law. The Court even explained to plaintiffs' counsel how an ERISA claim could be presented by Mick Suter in the state-court system. See Hearing Tr (Dec 9, 2016) at 33-35, 39-41.

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