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Phillips 66 Co. v. Sacks

United States District Court, W.D. Washington, Seattle

September 10, 2019

PHILLIPS 66 COMPANY, et al., Plaintiffs,




         Before the court are two motions to dismiss Plaintiffs Phillips 66 Company and Manager HR Shared Services' (collectively, “Phillips 66”) complaint-one filed by Defendant Joel Sacks, Director of the State of Washington Department of Labor and Industries (the “Director”) (Director MTD (Dkt. # 4)), and one filed by Intervenor Association of United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, Local 12-590 (“USW Local”) (USW Local MTD (Dkt. # 13)). Phillips 66 opposes both motions. (Resp. to Director MTD (Dkt. # 20); Resp. to USW Local MTD (Dkt. # 22).) The Director and USW Local filed replies.[1] (Director Reply (Dkt. # 24); USW Local Reply (Dkt. # 23).) The court has reviewed the motions, the parties' submissions concerning the motions, the relevant portions of the record, and the applicable law. Being fully advised, [2] the court GRANTS the Director's and USW Local's motions to dismiss and DIMISSES Phillips 66's complaint WITH PREJUDICE and without leave to amend.


         The facts necessary to adjudicate this motion are not complex. Phillips 66 does not offer its employees “sick leave”; instead, it offers its employees short and long-term disability benefits under a disability plan (the “Plan”). (Compl. (Dkt. # 1) at 3-4.) In 2013, two Washington-based Phillips 66 employees-Rachelle Honeycutt and Gabriel Westergreen-took leave from work to care for ill family members. (Id. at 4.) Both employees sought to use the short-term disability benefits under the Plan to cover those absences. (Id. at 3-4.) Phillips 66 rejected both requests. (Id. at 4.)

         Although this factual background is straightforward, it yielded a long-winding procedural history. After Phillips 66 denied their benefits requests, Ms. Honeycutt and Mr. Westergreen filed protected leave complaints with the Washington State Department of Labor and Industries (the “Department”). (Id. at 4.) Those complaints alleged that Phillips 66's benefits denials violated the Washington Family Care Act (“WFCA”), which entitles Washington employees to take leave from work to care for ill family members. (Id.) The Department initially found that Phillips 66 did not violate WFCA and, as such, it issued Determinations of Compliance. (Id.) Ms. Honeycutt and Mr. Westergreen appealed those decisions to the Whatcom County Superior Court, which affirmed the Department's decisions. (Id.)

         The Washington Court of Appeals reversed and remanded. (Id. at 4-5); see also Honeycutt v. State, Dep't of Labor & Indus., 389 P.3d 773 (Wash.Ct.App. 2017). Specifically, the court held that, where an employer does not offer paid leave for illness, WFCA entitles employees to access disability benefits for family care. Honeycutt, 389 P.3d at 778 (interpreting RCW 49.12.265(5)). Thus, if WFCA applied to Phillips 66's Plan, Ms. Honeycutt and Mr. Westergreen would be entitled to use short-term disability benefits to cover absences for family care. Id. at 780. The court noted, however, that WFCA exempts disability plans covered by the Employee Security Retirement Income Security Act of 1974 (“ERISA”). Id. The Department did not make findings on whether the Plan was governed by ERISA. Id. Accordingly, the court remanded the case to the Department to adjudicate that issue. Id.

         On remand, a Department investigator and an Administrative Law Judge both determined that the Plan is governed by ERISA. (Compl. at 6, 9.) But, on October 25, 2018, the Director reversed and determined that the short-term disability benefits that Ms. Honeycutt and Mr. Westergreen sought to use for family care leave did not fall under an ERISA plan. (Id. at 9.) Thus, the Director found that WFCA applied and that Phillips 66 violated WFCA by denying Ms. Honeycutt and Mr. Westergreen's benefits requests. (See id., Ex. C at 3-7.[3]) The Director assessed a $200 penalty against Phillips 66 for each violation. (Id., Ex. C at 7.) Phillips 66 moved for reconsideration of the Director's order, but the Director denied that motion on January 8, 2019. (Id., Ex. C at 11-12.)

         Phillips 66 filed the current action on February 5, 2019. (See Compl.) Phillips 66 contends that “[t]he sole issue here is whether the Plan, including its short-term disability benefit, is an ERISA Plan and, therefore, excluded from coverage under the WFCA, RCW 49.12.265(5).” (Id. at 2.) The day after filing this case, Phillips 66 filed a petition for judicial review in Whatcom County Superior Court that sought direct review of the Director's decision on Ms. Honeycutt and Mr. Westergreen's complaints (the “State Court Action”). (See Director MTD, Ex. B.) Phillips 66 moved to stay the State Court Action while the current case was pending, and, on March 22, 2019, the Whatcom County Superior Court granted that motion and stayed the State Court Action “until the federal court has issued an order on Petitioner's Complaint for Declaratory Judgment and Injunctive Relief.” (Birmingham Decl. (Dkt. # 21-1) ¶ 2.)

         The Director filed his motion to dismiss the complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) on February 28, 2019. (See Director MTD.) In that motion, the Director presents three challenges to Phillips 66's complaint: (1) the court is barred from granting the relief Phillips 66 seeks under the Anti-Injunction Act, 28 U.S.C. § 2283 (“AIA”); (2) the court should abstain from deciding this case under the Younger abstention doctrine; and (3) the court lacks subject matter jurisdiction over this case under the Rooker-Feldman doctrine. (See Director MTD at 6-13.) The Director also requests his fees. (Id. at 13-14.) USW Local successfully moved to intervene in this case and filed its motion to dismiss on April 4, 2019.[4] (See USW Local MTD.) USW Local offers three arguments in support of dismissal in its motion: (1) the Director's order that the Plan is not an ERISA plan is preclusive in this court and deprives this court of subject matter jurisdiction; (2) Phillips 66's complaint does not arise under federal law; and (3) the AIA bars the relief that Phillips 66 seeks. (See USW Local MTD at 7-22.) On reply, USW Local also challenged Phillips 66's standing to bring this case. (USW Local Reply at 9-10.) The court considers these arguments in turn.


         A. Standards

         1. Rule 12(b)(1)

         USW Local and the Director allege a number of facial attacks on the court's subject matter jurisdiction to hear this case. (See USW Local MTD at 6-16; USW Local Reply at 9-10; Director MTD at 12-13.) “In a facial attack, the challenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). “The district court resolves a facial attack as it would a motion to dismiss under Rule 12(b)(6): Accepting the plaintiff's allegations as true and drawing all reasonable inferences in the plaintiff's favor, the court determines whether the allegations are sufficient as a legal matter to invoke the court's jurisdiction.” Leite v. Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014) (citing Pride v. Correa, 719 F.3d 1130, 1133 (9th Cir. 2013)). The party asserting its claims in federal court bears the burden of establishing subject matter jurisdiction. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994).

         USW Local also alleges that Phillips 66's claim is not ripe for review (see USW Local Reply at 9-10), which presents a Rule 12(b)(1) issue, Maya v. Centex Corp., 658 F.3d 1060, 1067 (9th Cir. 2011) (“[L]ack of Article III standing requires dismissal for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1).” (citations omitted)). “The ripeness doctrine is drawn both from Article III limitations on judicial power and from prudential reasons for refusing to exercise jurisdiction.”[5] Nat'l Park Hospitality Ass'n v. Dep't of Interior, 538 U.S. 803, 808 (2003) (internal quotations omitted); see also Wolfson v. Brammer, 616 F.3d 1045, 1058 (9th Cir. 2010) (“Ripeness has both constitutional and prudential components.”). To satisfy the constitutional ripeness requirement, there must be a case or controversy with issues that are “definite and concrete, not hypothetical or abstract.” Thomas v. Anchorage Equal Rights Comm'n, 220 F.3d 1134, 1139 (9th Cir. 2000) (citations and internal quotation marks omitted). To evaluate prudential ripeness, courts weigh two factors: “the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration.” Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967), overruled on other grounds by Califano v. Sanders, 430 U.S. 99 (1977). “A claim is fit for decision if the issues raised are primarily legal, do not require further factual development, and the challenged action is final.” Wolfson, 616 F.3d at 1060. “To meet the hardship requirement, a litigant must show that withholding review would result in direct and immediate hardship[.]” Id. (citations and internal quotations omitted).

         2. Rule 12(b)(6)

         Federal Rule of Civil Procedure 12(b)(6) provides for dismissal for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). When considering a motion to dismiss under Rule 12(b)(6), the court construes the complaint in the light most favorable to the nonmoving party. Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). The court must accept all well-pleaded facts as true and draw all reasonable inferences in favor of the plaintiff. Wyler Summit P'ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir. 1998). The court, however, is not required “to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

         “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, 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)); see also Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir. 2010). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 677-78. “A pleading that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.' . . . Nor does a complaint suffice if it tenders ‘naked assertion[s]' devoid of ‘further factual enhancement.'” Id. at 678 (quoting Twombly, 550 U.S. at 555, 557). Dismissal under Rule 12(b)(6) may also be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).

         B. Requests for Judicial Notice

         As a threshold matter, the court grants the parties' requests to take judicial notice of the relevant filings in the State Court Action. (See Director MTD at 9; Resp. to Director MTD at 4.) The court may take judicial notice of “a fact that is not subject to reasonable dispute because it . . . can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Fed.R.Evid. 201(b)(2). Under this rule, courts may take judicial notice of federal and state court proceedings, see, e.g., Shetty v. Wells Fargo Bank, NA, 696 Fed.Appx. 828, 829 (9th Cir. 2017), without converting a Rule 12 motion to a motion for summary judgment, United States v. 14.02 Acres of Land More or Less in Fresno Cty., 547 F.3d 943, 955 (9th Cir. 2008) (citations omitted). Thus, the court takes judicial notice of the filings in the State Court Action when considering the present motions to dismiss.

         C. Subject Matter Jurisdiction

         1. Ripeness

         In its reply memorandum, USW Local argues that Phillips 66's claims are not ripe. (See USW Local Reply at 9-10.) Specifically, USW Local alleges that if the court credits Phillips 66's argument that it seeks only to enjoin future administrative proceedings (as opposed to the State Court Action), this case is not ripe.[6] (USW Local Reply at 9 (“[I]f this Court were to take Phillips 66 at its word that it only seeks declaratory and injunctive relief for the purposes of precluding future proceedings, the Court must nonetheless dismiss the claims as unripe.”).) Typically, the court declines to consider arguments raised for the first time in reply. See Coos Cnty. v. Kempthorne, 531 F.3d 792, 812 n.16 (9th Cir. 2008) (declining to consider an argument raised for the first time in a reply brief); Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999) (“We do not consider arguments raised for the first time in the reply brief.”). Given that standing implicates the court's subject matter jurisdiction, however, the court addresses standing at the threshold. See Bates v. United Parcel Serv., Inc., 511 F.3d 974, 985 (9th Cir. 2007) (“We must assure ourselves that the constitutional standing requirements are satisfied before proceeding to the merits.” (citations omitted)); Nw. Envtl. Advocates v. U.S. Dep't of Commerce, 322 F.Supp.3d 1093, 1096 (W.D. Wash. 2018) (“As a threshold matter, the Court must ensure it has subject matter jurisdiction, a key component of which is Article III standing.” (citations omitted)).

         Phillips has alleged a sufficiently concrete injury to satisfy the constitutional ripeness requirements. The Director ordered that “[Phillips 66's] short-term disability plan is a payroll practice exempt from ERISA.” (Compl. Ex. C at 7.) Phillips 66 seeks a declaration from this court stating that the Plan is an ERISA plan. (Compl. at 2.) That is a definite and concrete dispute. The court disagrees with USW Local's argument that Phillips 66's claim is not ripe until the Department initiates another enforcement action against Phillips 66 for violation of WFCA. (See USW Local Reply at 9-10.) This is not a hypothetical regulatory dispute that may impact Phillips 66 in the future. Phillips 66 continues to administer the Plan, and the Director has reviewed the Plan and determined that it does not fall under ERISA. (Compl. Ex. C at 7.) Thus, Phillips 66 must either administer the Plan under WFCA in compliance with the Director's order and risk depriving plan participants of ERISA benefits or flout the Director's order by administering the plan under ERISA and risk violating WFCA.[7] That puts Phillips 66 “in a dilemma that it was the very purpose of the Declaratory Judgment Act to ameliorate.” Abbott Labs., 387 U.S. at 152.

         Phillips 66's claims also satisfy the prudential ripeness requirements-fitness for judicial review and hardship. First, this case is fit for judicial review. The issue presented-whether the Plan is governed by ERISA-needs no further factual development. The parties agree that no facts beyond those contained in the administrative record are needed to resolve this dispute. (JSR (Dkt. # 15) at 3 (“The parties believe that no discovery is needed and that the facts of this matter are limited to the Agency Record, Agency Case Number 2018-024-PL, supplemented by Agency Case Number 2014-LI-0033, #000515-000687.”).) The court also agrees with USW Local that the Director's order is a “final agency action.”[8] See Ass'n of Am. Med. Colleges v. United States, 217 F.3d 770, 780 (9th Cir. 2000) (internal quotations omitted) (“Agency action is fit for review if the issues presented are purely legal and the regulation at issue is a final agency action.”). And, as noted above, given that Phillips 66 continues to administer the Plan and is now subject to a final agency order concluding that the Plan is not subject to ERISA, there will be hardship to Phillips 66 if this dispute is not promptly resolved.

         In sum, the court finds that Phillips 66's requests for declaratory and injunctive relief satisfy both the constitutional and prudential requirements for ripeness.

         2. Additional 12(b)(1) Arguments

         Although the court finds that Phillips 66 has standing to bring this claim, the Director and USW Local offer three additional arguments challenging the court's subject matter jurisdiction. First, USW Local argues that the court has subject matter jurisdiction under ERISA only if the Plan is an ERISA plan, and the Director's decision that the Plan is not an ERISA plan is res judicata or entitled to preclusive effect in this action. (USW Local MTD at 9 (“[A]bsent an ERISA plan, § 1132(a) does not provide a basis for subject matter jurisdiction.”).) As such, according to USW Local, the court has no choice but to dismiss for lack of subject matter jurisdiction. (Id. at 9-13.) Second, USW Local alleges that Phillips 66's claim does not arise under federal law under the well-pleaded complaint rule. (Id. at 13-16.) Third, the Director alleges that the court lacks jurisdiction under the Rooker-Feldman doctrine. (Director MTD at 12-13.) The court addresses each of these arguments below.

         First, USW Local's res judicata argument is unavailing because that argument does not bear on the court's subject matter jurisdiction. Even if USW Local is correct that the Director's decision is entitled to preclusive effect, the existence (or lack thereof) of an ERISA plan is a threshold factual issue that goes to the merits of Phillips 66's claims under ERISA, not the court's subject matter jurisdiction.[9] The court recognizes that there is caselaw in the Ninth Circuit supporting USW Local's argument that the status vel non of an ERISA plan is a jurisdictional issue. See, e.g., Delaye v. Agripac, Inc., 39 F.3d 235, 238 (9th Cir. 1994) (“Because Delaye's employment contract is not a ‘plan' governed by ERISA, his claim that his contract was breached does not present a federal question. The district court lacked jurisdiction to resolve this dispute.”). But the continuing validity of that conclusion is doubtful in light of the Supreme Court's holding in Arbaugh v. Y&H Corp., 546 U.S. 500 (2006).

         The Arbaugh Court noted that this area of the law-which the Court termed the “subject-matter jurisdiction/ingredient-of-claim-for-relief dichotomy”-is one that has caused no shortage of consternation. 546 U.S. at 511 (“Judicial opinions . . . often obscure the issue by stating that the court is dismissing ‘for lack of jurisdiction' when some threshold fact has not been established, without explicitly considering whether the dismissal should be for lack of subject matter jurisdiction or for failure to state a claim.”). To help draw the line between jurisdictional issues and questions that go to the merits, the Court articulated the following bright line rule:

If the Legislature clearly states that a threshold limitation on a statute's scope shall count as jurisdictional, then courts and litigants will be duly instructed and will not be left to wrestle with the issue. . . . But when Congress does not rank a statutory limitation on coverage as ...

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