9th Circuit weighs statutory requirement failure

February 1, 2012
By Mark D. DeBofsky

Mark D. DeBofsky is a name partner of Daley, DeBofsky & Bryant. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage, and Social Security law.

A recent ruling from the 9th U.S. Circuit Court of Appeals addressed the question of whether an alleged failure to meet a statutory requirement results in the federal court losing subject matter jurisdiction.

The case of Leeson v. Transamerica Disability Income Plan, 2012
U.S.App.LEXIS 1248 (9th Cir. Jan. 23, 2012), involved a lawsuit brought by Jack Leeson challenging the termination of his group disability benefit payments. Although the insurer won, in a prior appellate ruling, the 9th Circuit remanded and ordered the district court to reconsider the claim and apply the de novo standard rather than the deferential standard of review it had utilized. Rather than addressing the merits, though, the court dismissed the case for lack of standing on the ground Leeson was no longer a plan participant. However, applying Vaughn v. Bay Environmental Management, Inc., 567 F.3d 1021, 1024 (9th Cir. 2009), the court found that Vaughn's "colorable claim" to benefits afforded him standing sufficient to confer subject matter jurisdiction upon the court. The court explained:

"Whether Leeson is a participant for purposes of ERISA [Employee Retirement Income Security Act] is a substantive element of his claim, not a prerequisite for subject matter jurisdiction. As the Supreme Court has instructed, 'when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character.'" Arbaugh v. Y & H Corp., 546 U.S. 500, 516, 126 S. Ct. 1235, 163 L. Ed. 2d 1097 (2006).

Although the standing issue had not been asserted earlier in the litigation, following the 9th Circuit's remand, the defendant's newly retained counsel argued that relevant plan documents were recovered that showed Leeson was not eligible to apply for benefits. At the time he applied, Leeson was on an unpaid leave of absence and the plan stated: "If an eligible employee is on an unpaid leave of absence, his or her status as a long-term participant shall be suspended and he or she shall be ineligible for long-term disability benefits." The plaintiff challenged the allegation that he was on an unpaid leave, however, the district court deemed his affidavit "self-serving" and dismissed the action, finding the absence of statutory standing left the court without subject matter jurisdiction.

The appellate court acknowledged that under ERISA, federal jurisdiction is limited to suits brought by certain statutorily enumerated parties, citing Franchise Tax Bd. v. Constr. Laborers Vacation Trust. 463 U.S. 1, 21, 103 S. Ct. 2841, 77 L. Ed. 2d 420 (1983). Thus, the question before the court was "whether the challenge to Leeson's status as a plan participant implicates federal court subject matter jurisdiction or the substantive adequacy of Leeson's claim."

The court began by recognizing that 28 U.S.C. § 1331 gives the federal courts jurisdiction over "all civil actions arising under the Constitution, laws or treaties of the United States." Therefore, jurisdictional dismissals of claims brought under federal law are "exceptional" and should only occur if: 1) "the alleged claim under the Constitution or federal statutes clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction"; or 2) "such a claim is wholly insubstantial and frivolous." Bell v. Hood. 327 U.S. 678, 682-3 (1946).

Unfortunately, the courts have recognized that they were not always clear in their analysis of subject matter jurisdiction dismissals, however, Arbaugh deems the "drive-by" analyses of subject matter jurisdiction in prior cases non-precedential and sets the record straight. That case involved an issue that arose in a post-trial motion filed in a Title VII discrimination claim where the defendant asserted a lack of subject matter jurisdiction due to the employer having fewer than 15 employees. The Supreme Court ultimately concluded the issue was one of substantive inadequacy but held the numerosity requirement was not jurisdictional. Subsequent Supreme Court rulings have reaffirmed the principle that if statutory requirements are not specifically enumerated as jurisdictional, the failure to meet such requirements does not divest the court of subject matter jurisdiction.

Under ERISA, the term "participant" is statutorily defined in 29 U.S.C. § 1002(7) as an "employee or former employee of an employer... who is or may be eligible to receive a benefit... " ERISA permits a civil action to be brought by a "participant" to "recover benefits." 29 U.S.C. § 1132(a)(1)(B). To qualify as a "participant," the Supreme Court clarified that the term includes a former employee who has "a colorable claim that... she will prevail in a suit for benefits." Firestone Tire & Rubber Co. v. Bruch. 489 U.S. 101, 117 (1989). Firestone offered no discussion of subject matter jurisdiction, however. Thus, with the guidance of Arbaugh, the 9th Circuit ruled in Vaughn and in subsequent cases that claims of lack of standing are merits-based, rather than issues of subject matter jurisdiction since ERISA's jurisdictional provisions (29 U.S.C. §§ 1132(e) and (f)) are separate from the statutory definition of participant and the provision authorizing a "participant" to bring a civil action. Thus, the assertion of a colorable claim is sufficient to allege a claim under ERISA over which the district court has subject matter jurisdiction.

Accordingly, the court ruled the defendant's allegations of Leeson's lack of standing may only be resolved at summary judgment or at trial. The court added that on remand Leeson was not foreclosed from raising equitable principles of waiver and estoppel to bar Transamerica's newly asserted challenge to his eligibility as a plan participant and that he could also assert that ERISA forecloses the defendant's post hoc argument asserting a lack of standing.