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Surendra K. Shrivastava v. Fry's Electronics


August 29, 2011


The opinion of the court was delivered by: Lucy H. Koh United States District Judge


(re: dkt. #11)

Presently before the Court is a motion to remand. See Dkt. #11. The Court deems this motion appropriate for resolution without oral argument, and vacates the September 1, 2011 19 motion hearing and case management conference. See Civ. L.R. 7-1(b). For the reasons explained 20 below, the Court GRANTS the motion to remand. This action is remanded to the Santa Clara County Superior Court.


This is an action arising from the alleged failure of Defendant Fry's Electronics, Inc. ("Defendant") to pay all earned and unused vacation at employment termination to Plaintiff 25 Surendra K. Shrivastava ("Plaintiff"). On January 19, 2011, Plaintiff, on behalf of himself and all 26 persons similarly situated, filed a class action complaint in Santa Clara County Superior Court 27 alleging two state law causes of action: (1) Unfair Competition in violation of California Business 28 & Professions Code § 17200 et seq.; and (2) Failure to Pay Accrued Vacation Compensation in violation of California Labor Code §§ 201, 203, 216, 218.5, and 227.3. Specifically, Plaintiff 2 alleges that he was a "non-exempt, hourly employee" of Defendant, and that he was not paid for 3 forfeited vacation and holiday time because of Defendant's "use it or lose it" vacation and holiday 4 pay policy. See Compl. ¶¶ 1-4. In addition, Plaintiff alleges that Defendant had a "Voluntary 5

However, according to Plaintiff's allegations, Defendant did not pay vacation benefits with funds 7 from the VEBA Plan, but instead paid benefits from its general assets. Id. at ¶ 2. 8

9 based on federal question jurisdiction. According to Defendant, Plaintiff's state law claims are 10 completely preempted by the Employment Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. See Notice of Removal ¶ 3.*fn1

Upon removal, Plaintiff filed a timely motion to remand. Defendant has filed an opposition, and Plaintiff has filed a reply. The motion is now ripe for the Court's decision.

removal." See Marin Gen. Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941, 944 (9th Cir. 17 "strong presumption" against removal. See Abrego v. Dow Chem. Co., 443 F.3d 676, 685 (9th Cir. 19 2006). In general, courts look to the "well-pleaded complaint rule" to determine whether an action 20 falls within the bounds of federal question jurisdiction. See Marin General, 581 F.3d at 944. Thus, 21 if a complaint contains only state law causes of action, there is generally no federal question 22 jurisdiction even if there is a federal defense to the state law cause of action. See Aetna Health Inc. 23 v. Davila, 542 U.S. 200, 207 (2004). However, there is an exception to the well-pleaded complaint 24 rule for state law causes of action that are "completely preempted" by ERISA. See id. at 208; see 25 also Marin General, 581 F.3d at 944. 26 27 preempted by ERISA, and are thus removable on the ground of federal question jurisdiction. 28

Employees' Beneficiaries Association Trust ("VEBA") Plan" to provide vacation benefits. 6

Defendant removed this action on April 15, 2011. Defendant argues that removal is proper


"The burden of establishing federal subject matter jurisdiction falls on the party invoking 2009). The Court strictly construes the removal statute against removal jurisdiction, and there is a 18 Here, Defendant alleges that Plaintiff's two state law causes of action are completely Defendant contends that its VEBA Plan is an ERISA "employee welfare benefit plan" within the 2 meaning and governance of ERISA, 29 U.S.C. § 1002(1), which includes any plan maintained for 3 the purpose of providing "vacation benefits" for its participants. If Defendant is correct, ERISA 4 would preempt any state law relating to Defendant's VEBA Plan, 29 U.S.C. § 1144(a), and 5

The Court finds, however, that Defendant has failed to meet its burden of establishing removal jurisdiction. "In order to determine whether an asserted state-law cause of action comes 8 within the scope of § 502(a)(1)(B), the [Supreme] Court formulated a two-prong test. Under 9 Plaintiff's action would be removable on the basis of federal question jurisdiction. 6

Davila, a state-law cause of action is completely preempted if (1) 'an individual, at some point in 10 time, could have brought [the] claim under ERISA § 502(a)(1)(B),' and (2) 'where there is no other independent legal duty that is implicated by a defendant's actions.'" See Marin General, 581 F.3d at 946.

Plan, Plaintiff could not bring a claim under ERISA. The U.S. Supreme Court's decision in Massachusetts v. Morash, 490 U.S. 107 (1989), is directly on point. In Morash, the Supreme Court 17 stated, "In enacting ERISA, Congress' primary concern was with the mismanagement of funds 18 accumulated to finance employee benefits and the failure to pay employees benefits from 19 accumulated funds." Id. at 109. Morash held that a company's policy to pay employees for 20 unused vacation time did not constitute an "employee welfare benefit plan" where those benefits 21 were paid from the company's general assets and not from the company's employee trust fund. Id. 22

VEBA trusts similar to the one at issue here are not covered by ERISA. See Czechowski v. Tandy 24 Corp., 731 F. Supp. 406, 408 (N.D. Cal. 1990) (where company paid vacation benefits out of 25 general assets instead of VEBA trust, holding that the VEBA trust was not a plan covered by 26 May 28, 1996) (rejecting argument that VEBA Plan was an ERISA "employee welfare benefits 28 On the record before this Court, which contains only Plaintiff's uncontested allegations that Defendant paid vacation and holiday benefits out of its general assets and not out of the VEBA 15 Other courts in this District and this Circuit have relied on Morash's reasoning in holding that 23 ERISA); see also Lombardo v. Broadway, Inc., 1996 U.S. Dist. LEXIS 22369, *6-9 (C.D. Cal. plan" where the employer disbursed payments of benefits directly to the employees from its 2 general fund).

As to the second prong of the Davila test, the California Labor Code provisions cited by Plaintiff, namely Sections 201, 203, 216, 218.5, and 227.3, provide an "independent legal duty" 5 from ERISA. See Lopez v. G.A.T. Airline Ground Support, Inc., 2010 U.S. Dist. LEXIS 73029, *8-6 17 (S.D. Cal. July 19, 2010) (analyzing employer's duties with respect to vacation and holiday pay, 7 including "use it or lose it" policy, under California Labor Code). With such independent legal 8 duties on Defendant created by California state law, Plaintiff's state law claims are not completely 9 preempted by ERISA. See Marin General, 581 F.3d at 950 (rejecting argument for complete 10 preemption "[s]ince the state-law claims asserted in this case are in no way based on an obligation under an ERISA plan, and since they would exist whether or not an ERISA plan existed, they are based on 'other independent legal dut[ies]' within the meaning of Davila."). Defendant, of course, 13 may assert any defenses, including a defense of conflict preemption, in state court. See id. at 949 14 ("Defendants are free to assert in state court a defense of conflict preemption under § 514(a), but 15 they cannot rely on that defense to establish federal question jurisdiction."). 16

thus not established any basis for this Court's jurisdiction over Plaintiff's state law claims. 18

In sum, Defendant has not satisfied its burden of establishing complete preemption, and has

Accordingly, the Court must grant Plaintiff's motion to remand.*fn2


As explained above, this Court lacks jurisdiction over Plaintiff's state law claims.

Accordingly, this action is REMANDED to Santa Clara County Superior Court. The September 1, 2011 motion hearing and case management conference are vacated.

The Clerk shall close the file 2 and terminate any pending motions.


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