Arrington v. H.I.G. Capital Management LLC

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re:

JC USA, Inc. d/b/a Jenny Craig, et al.,¹ Debtors.

Chapter 7

Case No. 23-10585 (JKS)

Jointly Administered

ADRIENNE ARRINGTON, et al.,

Plaintiffs,

v.

H.I.G. CAPITAL MANAGEMENT LLC,

et al.,

Defendants.

Adv. Pro. No. 25-50002 (JKS) Related Dist. Ct. D.I. 34 Related Adv. D.I. 2

OPINION²

Before the Court is the Defendant H.I.G. Capital Management LLC's ("H.I.G.") Motion to Dismiss Pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(f) (the "Motion"). Having considered the parties' submissions, and for the reasons set forth herein, the Court will grant the Motion, but will allow leave for the Plaintiffs to amend the Complaint.

1

2

BACKGROUND³

I. Procedural Background On January 5, 2024, Plaintiffs (as defined herein) commenced this action by filing a complaint (the "Complaint") in the Superior Court of the State of California, County of Los Angeles, Case No. 24STCV00341 (the "State Court Action"),⁴against the following defendants:

H.I.G.; Encina Private Credit SPV, LLC (which was subsequently dismissed);⁵John Doe 1-5, Mandy Dowson, former CEO of Jenny Craig; and Does 1-50.⁶On February 8, 2024, the State Court Action was removed to the U.S. District Court for the Central District of California⁷and, on May 3, 2024, was transferred to the U.S. District Court for the District of Delaware.⁸On January 7, 2025, the Delaware District Court granted the Defendant HIG's motion to refer the case to this Court.⁹

The Complaint asserts six counts: (1) failure to provide worker adjustment and retraining notification under the California Labor Code (the "California WARN Act"), (2) unpaid wages and waiting time penalties under the California Labor Code, (3) failure to provide rest and meal breaks in accordance with the California Labor Code, (4) failure to reimburse business expenses

3

in accordance with the California Labor Code, (5) failure to provide COBRA (as defined below) notice, and (6) breach of contract as to medical insurance benefits.¹⁰ H.I.G. filed the Motion and brief in support of the Motion ("Opening Brief") on May 17, 2024.¹¹The Plaintiffs (as defined herein) filed a brief in opposition ("Opposition Brief") to the Motion on May 31, 2024.¹²H.I.G. filed its reply ("Reply") on June 7, 2024.¹³A Notice of Completion of Briefing was filed on February 27, 2025.¹⁴This is the Court's ruling.

II. Factual Allegations¹⁵ Jenny Craig was a weight loss, weight management, and nutrition company operating since 1983.¹⁶H.I.G. acquired Jenny Craig, Inc. ("Jenny Craig") in or around 2019.¹⁷The Complaint alleges that in or around 2022, Jenny Craig was in dire financial condition in part due to the mismanagement and misappropriation by H.I.G.¹⁸In May of 2023, Jenny Craig closed all its offices and laid off the named plaintiffs, each of whom were employees of Jenny Craig at the time (collectively, the "Plaintiffs").¹⁹

The Complaint alleges that on or around April 25, 2023, Jenny Craig, while under the control of H.I.G., sent an email to a selective group of corporate employees announcing Jenny

4

Craig's upcoming closure, while keeping the information from all other employees.²⁰According to the Complaint, most of the Plaintiffs did not receive said email.²¹The Complaint further states that despite the requirement that a 60-day notice be given to employees, H.I.G. did not give required advance notice of the layoff.²²

On the day of the mass layoff, some employees received informal communications from supervisors telling them not to come to work, while others went to work as usual only to find that the location was closed and they could not access their belongings inside.²³The Complaint further states the Plaintiffs either did not receive a paycheck for their last pay period or received one but were unable to cash it as defendants did not reserve enough cash to pay outstanding wages and benefits.²⁴In addition, the Complaint alleges the Plaintiffs had outstanding paid time off that was never paid, had deductions from paychecks while the Defendants failed to maintain their medical insurance, incurred business expenses that were not reimbursed, and were told at the time of hiring they were entitled to severance based on the length of time they worked at the company.²⁵

Jenny Craig filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code on May 5, 2023.²⁶

5

JURISDICTION

The Court has jurisdiction over the Motion pursuant to 28 U.S.C. §§ 157 and 1334(b), and the Amended Standing Order of Reference from the United States District Court for the District of Delaware, dated as of February 29, 2012. Venue is proper in this District pursuant to

28 U.S.C. § 1409.

LEGAL STANDARD

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), made applicable to this proceeding by Bankruptcy Rule 7012(b), challenges the sufficiency of the factual allegations in the complaint.²⁷Rule 12(b)(6) is related to Rule 8(a)(2), which requires that a pleading contain "a short and plain statement of the claim showing that the pleader is entitled to relief."²⁸ When a complaint is challenged by a motion to dismiss under Rule 12(b)(6), the complaint "does not need detailed factual allegations, [but] a plaintiff's obligation to provide the grounds of his entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do."²⁹Two "working principles" underly this pleading standard:

First, the tenet that a court must accept a complaint's allegations as true is inapplicable to threadbare recitals of a cause of action's elements, supported by mere conclusory statements. Second, determining whether a complaint states a plausible claim is context-specific, requiring the reviewing court to draw on its experience and common sense.³⁰

6

Under this pleading standard, a complaint must nudge claims "across the line from conceivable to plausible."³¹The movant carries the burden of showing that dismissal is appropriate.³²The relevant record for consideration includes the Complaint and any document "integral to or explicitly relied upon in the complaint."³³

In analyzing a motion to dismiss, the Third Circuit instructs courts to follow a three-part analysis. "First, the court must 'tak[e] note of the elements a plaintiff must plead to state a claim.'"³⁴Second, the court must separate the factual and legal elements of the claim, accepting all of the complaint's well-pleaded facts as true and disregarding any legal conclusions.³⁵Third, the court must determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a plausible claim for relief.³⁶After conducting this analysis, the court may conclude that a claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the alleged misconduct.³⁷

ANALYSIS

I. Choice of Law In analyzing the Motion, the Court must first determine which state law applies to the causes of action alleged in the Complaint—Delaware or California. The Plaintiffs argue California has a significantly stronger relationship with the dispute than Delaware because the Plaintiffs are California residents, the alleged employment and labor violations occurred in

7

California, Jenny Craig was headquartered in California, most witnesses and evidence are located in California, and the majority of Plaintiffs' claims are California state law claims.³⁸ H.I.G. argues Delaware law could apply because H.I.G. is a Delaware LLC, but also recognizes that "California law arguably governs Plaintiffs' claims, because California likely has the most significant relationship to Plaintiffs' claims arising from alleged violations of the California Labor Code . . . ."³⁹

Applying the Restatement (Second) of Conflict of Law's "most significant relationship"

test to determine which state law applies,⁴⁰the Court finds that California is the state with the most significant relationship to the Plaintiffs' claims. More specifically, and as acknowledged by the parties, the Plaintiffs are California residents asserting employment and labor violations which occurred in California in violation of the California Labor Code. Accordingly, the Court will apply California law where relevant.

II. The Complaint Fails to Adequately Plead that H.I.G. was an Employer Each of the six causes of action in the Complaint is premised on an employer-employee relationship and the parties disagree about whether H.I.G. qualifies as an employer. H.I.G. argues the Complaint fails to assert any legal theory whereby H.I.G. could be liable for causes of

8

action arising from the Plaintiffs employment with Jenny Craig. In addition, it contends the Complaint fails to allege any facts that speak to H.I.G.'s involvement in the management of Jenny Craig's employees, and that allegations that Jenny Craig was "under the control" of H.I.G. are insufficient.⁴¹The Plaintiffs argue the allegations are sufficient to establish H.I.G.'s status as an employer, both under common law and under the IWC wage order number 12-2001 definition of "employer." The Plaintiffs also raise new allegations, for the first time in their Opposition Brief, that H.I.G. qualifies as an employer as a common law joint employer or as an alter-ego of Jenny Craig.⁴²

As a preliminary matter, the Third Circuit has held, "we do not consider after-the-fact allegations in determining the sufficiency of . . . complaint[s]."⁴³"It is axiomatic that the complaint may not be amended by the briefs in opposition to a motion to dismiss."⁴⁴ Consequently, the allegations raised for the first time in the Opposition Brief are not considered in determining the sufficiency of the Complaint. Nevertheless, the Court will address the theories in the context of what is alleged in the Complaint.

A. The Plaintiffs' Joint Employer Theory

Courts apply the "integrated enterprise" test to causes of action arising from alleged violations of the California Labor Code where a plaintiff seeks to hold the parent corporation liable for California Labor Code violations.⁴⁵When determining whether entities are liable as a

9

an integrated enterprise, courts consider four factors: (1) interrelation of operations; (2) common management; (3) centralized control of labor relations; and (4) common ownership or financial control.⁴⁶

The Complaint alleges certain unidentified individuals were managers of H.I.G.,

"managing the operation of Jenny Craig, Inc., as well as employees of Jenny Craig, Inc."⁴⁷It also alleges that H.I.G. acquired Jenny Craig in or around 2019, and that Jenny Craig was "under the control of Defendants . . . ."⁴⁸

The allegations in the Complaint fall short of satisfying the four-factor test. To make a sufficient showing of interrelation of operations, a plaintiff must allege facts that suggest "that the parent has exercised control 'to a degree that exceeds the control normally exercised by a parent corporation.'"⁴⁹The Complaint includes no such allegations. To make a showing of the second factor, common management, requires evidence that an employee serves as a manager of both corporations or evidence that a manager of one company influenced day-to-day managerial (1998). The Plaintiffs cite to Mattei v. Corp. Mgmt. Sols., Inc., 52 Cal. App. 5th 116 (2020) for the proposition that

"a plaintiff must demonstrate that the defendant is an employer as defined in IWC wage order No. 12-2001." Wage order No. 12-2001 provides, "[t]his order shall apply to all persons employed in the motion picture industry . . . ."

This case does not involve persons employed in the motion picture industry. As a result, the wage order No. 12- 2001 definition not relevant here.

10

decisions of the other company.⁵⁰Again, the Complaint includes no such allegations.⁵¹There likewise are no specific facts alleged that support the third factor, centralized control of labor relations.⁵²Finally, as to the fourth factor, common ownership or financial control, "common ownership or control alone is never enough to establish parent liability."⁵³ The Complaint therefore fails to allege H.I.G.'s liability as a single employer. B. The Plaintiffs' Alter-Ego Theory

"In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone."⁵⁴"Among the factors to be considered in [determining whether there is such a unity of interest and ownership] are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other."⁵⁵"Other factors which have been described in the case law include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers."⁵⁶Conclusory allegations

11

of alter ego status are inadequate; instead, the "plaintiff must allege specifically both of the elements of alter ego liability, as well as facts supporting each."⁵⁷Under California law, alter ego is "an extreme remedy, sparingly used."⁵⁸

There is no mention of an agency relationship or alter ego in the Complaint. Furthermore, the Complaint fails to allege that either of the two conditions required under California law were met. There are likewise no factual allegations in the Complaint of the various enumerated factors courts consider when determining a unity of interest and ownership, other than the conclusion that H.I.G. had "control" over Jenny Craig.⁵⁹Instead, the theory is raised for the first time in the Opposition Brief, with no facts to support the allegation. For the reasons discussed above, the Court finds the Plaintiffs failed to adequately plead H.I.G.'s responsibility as an employer.

III. The Complaint Impermissibly Lumps All Defendants H.I.G. next argues that the Plaintiffs impermissibly lump H.I.G. with the other defendants and it is impossible to know which allegations are intended to support which claims against H.I.G..⁶⁰The Plaintiffs counter that there are only two remaining named defendants, and that the Complaint alleges, "Plaintiffs are informed and believe and thereon allege that at all relevant times mentioned herein, each of the individual defendants was at all times the owner, director or managing agent of the corporate defendants pursuant to California Labor Code Section 558.1 and caused the violations set forth herein, and thus are personally liable for all the labor code

12

violations."⁶¹The Plaintiffs further maintain they adequately allege that H.I.G. is an "employer"

for the purpose of surviving a motion to dismiss.⁶²The Plaintiffs contend the Complaint therefore places H.I.G. on sufficient notice of the claims asserted against it such that H.I.G. can evaluate the factual and legal bases of the claims at this stage in the litigation.⁶³ Case law makes clear that plaintiffs cannot combine allegations against multiple defendants.⁶⁴The applicable pleading standard requires defendants be given "fair notice of what . . . the claim is and the grounds upon which it rests."⁶⁵"The problem posed by collective- style pleading is that particular defendants may not be adequately apprised of the conduct they are alleged to have engaged in."⁶⁶

Here, the Complaint impermissibly lumps the defendants together such that H.I.G. is not adequately apprised of the conduct it is alleged to have engaged in. For example, the Complaint alleges "Defendants did not reserve enough cash to pay for employees' outstanding wages and benefits,"⁶⁷but fails to specify which of the 50 individual defendants or two remaining corporate

13

defendants had had a duty to reserve cash and failed to do so. In another instance, the Complaint alleges "Defendants are qualifying employers" under COBRA⁶⁸, without specifying which defendants were the qualifying employers. In another example, the sixth cause of action alleges

"Defendants and Plaintiffs went into a contract when Defendants offered Plaintiff medical insurance as a benefit of their employment with Jenny Craig, Inc.,"⁶⁹but does not specify which defendants were the counterparties to the contract.

Because each cause of action contains the same general allegations against "Defendants,"

the Complaint must be dismissed for failure to place H.I.G. on notice of the claims against it.

IV. The Complaint Fails to Allege a Plausible Claim for Relief Under the California WARN Act

The Complaint alleges that H.I.G. failed to give the required advance notice of layoffs in violation of the California WARN Act.⁷⁰The California WARN Act states, "[a]n employer may not order a mass layoff, relocation, or termination at a covered establishment unless, 60 days before the order takes effect, the employer gives written notice of the order . . . ."⁷¹The California Labor Code defines "Employer" as "any person, as defined by Section 18, who directly or indirectly owns and operates a covered establishment. A parent corporation is an employer as to any covered establishment directly owned and operated by its corporate subsidiary."⁷²Section 18 defines person to mean "any person, association, organization, partnership, business trust, limited liability company, or corporation."⁷³

14

The decision in In re HMR Foods is on point. That case involved the Delaware bankruptcy court analyzing California WARN Act claims asserted against a third-party entity which owned the underlying employer. The court there explained, "[t]he plain language of this section, read in conjunction with the definition of 'employer,' provides that a parent corporation may also be liable if it orders a shut down in violation of the Act."⁷⁴"This result becomes apparent if we replace the word 'employer' with 'parent company' in § 1401(a) so that the provision reads: a parent company may not order a mass layoff, relocation, termination at a covered establishment unless, 60 days before the order takes effect, the parent company gives written notice of the order."⁷⁵Further, the court recognized that the plain language of the California WARN Act does not hold parent companies strictly liable for the subsidiaries' liability.⁷⁶Ultimately, the court granted the motion to dismiss the California WARN Act claims because the complaint failed to adequately allege that the parent company ordered the store closings.

Here, the Complaint does not allege that H.I.G. ordered any layoff or termination. The Complaint states, "On or around May 1, 2023, Jenny Craig Inc., while under the control of Defendants H.I.G. and Encina Private Credit, closed all of its offices while laying off Plaintiffs, who were employees of Jenny Craig Inc., at the time of its sudden closure."⁷⁷Contrary to the assertions in the Plaintiffs' Opposition Brief,⁷⁸nothing in the Complaint alleges H.I.G. controlled

15

labor and employment decisions or ordered anything with respect to employment at Jenny Craig. Without more, the Complaint is insufficient to support a claim that H.I.G. ordered the layoffs. The Plaintiffs have not alleged sufficient facts to support a plausible claim under the California WARN Act, so the Motion will be granted as to the first cause of action.

V. The Second, Third, and Fourth Causes of Action Fail to Plead Sufficient Factual Support

H.I.G. argues the second, third, and fourth causes of action also fail because they merely recite an employer's obligations with a statement that the defendants failed to comply. Furthermore, it argues the Complaint fails to specify which of the 133 named Plaintiffs allegedly did not receive paychecks, suffered meal and/or rest break violations, or were not reimbursed for business expenses.⁷⁹The Plaintiffs counter that the District Court of California has held, "[o]ther courts have agreed that plaintiffs need not plead particular instances of unpaid overtime before being allowed to proceed to discovery."⁸⁰They further argue the allegations in the Complaint provide specific factual allegations that amount to more than a "formulaic recitation" of the elements of the causes of action.⁸¹

California courts often dismiss employment claims when a complaint merely recites an employer's legal obligations and states that the employer failed to comply.⁸²When pleading

16

claims for violations of the California Labor Code, "(1) stating various obligations California law imposes upon employers, (2) averring simply that Defendant violated those laws, and

(3) claiming damages and an entitlement to penalties and other relief" is insufficient.⁸³ The Plaintiffs cite to Varsam v. Laboratory Corporation of America⁸⁴in support of their position that plaintiffs need not plead particular instances of violations before being allowed to proceed to discovery.⁸⁵However, the complaint in Varsam is distinguishable as it included specific actions of the defendants and various examples of alleged wrongdoing which the court relied on when denying the motion to dismiss.⁸⁶Here, the Complaint does not contain any specifics or examples of purported wrongs that support the bare allegations.⁸⁷Instead, the regular rate of pay as premium pay compensation for failure to provide . . . meal periods"); Anderson v. Blockbuster Inc., No. 2:10-cv-00158-MCE-GGH, 2010 U.S. Dist. LEXIS 53854, at *6 (E.D. Cal. May 4, 2010) (dismissing complaint alleging that "Plaintiff and class members consistently worked in excess of eight hours in a day, in excess of 12 hours in a day and/or in excess of 40 hours in a week" and that "Defendants willfully failed to pay all overtime"); Harding v. Time Warner, Inc., No. 09cv1212-WQH-WMC, 2009 U.S. Dist. LEXIS 72851, at *8-9, 2009 WL 2575898 (S.D. Cal. Aug. 18, 2009) (dismissing complaint alleging that employer failed to "pay and properly calculate overtime" and "provide uninterrupted Meal Periods"); Deleon v. Time Warner Cable LLC, CV 09- 2438 AG (RNBx) 2009 U.S. Dist. LEXIS 74345, at *6 (dismissing complaint alleging that "[d]uring the relevant time period, Defendants willfully required Plaintiff and class members to work during meal periods and failed to compensate Plaintiff and class members for work performed during meal periods").

17

Complaint is more akin to the complaints courts routinely dismiss for failure to state a claim under the California Labor Code.⁸⁸

As to the second claim for relief, the only allegations of H.I.G.'s wrongdoing in connection with unpaid wages and waiting time penalties is that "Plaintiffs either did not receive a paycheck for their last pay period, or received a paycheck by mail, but were not able to cash the check as Defendants did not reserve enough cash to pay for employees' outstanding wages and benefits," and "Plaintiffs had outstanding Paid Time Off that was never paid out."⁸⁹These allegations fall well short of the facts plead in support of unpaid wages and waiting time penalties in Varsam, for example,⁹⁰and are conclusory statements which fail to meet the legal requirement.

With respect to the third claim for relief, the only factual allegation of H.I.G.'s wrongdoing in connection H.I.G.'s failure to provide rest and meal breaks is that "Defendants

18

failed to provide mandated meal and rest periods to some of the Plaintiffs."⁹¹This too falls well short of the facts plead in cases such as Varsam,⁹²which included specific allegations of employees being forced to clock out for scheduled rest periods but not being paid for such rest periods, a failure to schedule a sufficient number of employees, strongly discouraging work beyond scheduled shifts, and forcing employees to work through all or part of their rest breaks.⁹³ Regarding the fourth claim for relief, the only allegation in support of H.I.G.'s failure to reimburse business expenses is that "Defendants failed to reimburse Plaintiffs for the business expenditures and/or losses they incurred."⁹⁴This too is a recitation of the legal standard and a conclusory statement that H.I.G. failed to follow that standard.

The Complaint fails to allege specific wrongdoing beyond bare assertions that H.I.G. failed to comply with the applicable law, including a failure to identify how or why H.I.G. is responsible for the alleged wrongs while the Plaintiffs were employed by Jenny Craig at the time. Without more, the allegations in the Complaint in support of the second, third, and fourth causes of action are insufficient to support a plausible claim for relief. The Motion will therefore be granted as to these causes of action.

19

VI. The Fifth Cause of Action Fails to Adequately Plead a Claim for Relief for Failure to Provide Notice of COBRA Rights

H.I.G. argues that the fifth cause of action fails to allege that H.I.G. was a plan administrator or otherwise responsible for issuing notices under the terms of the applicable ERISA plan pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA").⁹⁵It argues that even if H.I.G. is a "qualifying employer," the Complaint misrepresents an employer's legal obligations under COBRA and that the plan administrator, not H.I.G., is required to provide notice of the plan beneficiaries' rights.⁹⁶Further, H.I.G. maintains that "continuation coverage" does not extend past "the date on which the employer ceases to provide any group health plan to any employee."⁹⁷H.I.G. asserts that as a result, any obligations to provide COBRA notice ended when Jenny Craig terminated its employee health insurance plan since Jenny Craig's former employees could not elect to continue coverage under an employee health insurance plan which no longer existed.⁹⁸

The Plaintiffs counter that, while the Complaint does not specifically state that H.I.G. is the plan administrator, it does sufficiently allege that a qualifying event triggered a qualifying employer's obligations and that the Plaintiffs did not receive the mandated notice.⁹⁹The Plaintiffs argue an inference can be drawn from the allegations in the Complaint that H.I.G. did not satisfy its obligation to provide COBRA notice, and that the question of whether H.I.G. was a

"qualifying employer" is a question of fact not properly raised at this stage.¹⁰⁰

20

COBRA and its accompanying regulations provide that the administrator of a group health plan subject to the COBRA continuation coverage requirements shall provide notice to each qualified beneficiary of the rights to continuation of coverage under the plan.¹⁰¹A qualified beneficiary is an employee, or spouse or dependent child of the employee, who on the day before the qualifying event is covered by the employer's group health plan.¹⁰²A qualifying event is, among other things, the termination or reduction of hours of a covered employee's employment, provided that the termination causes the qualified beneficiary to lose coverage under a plan.¹⁰³ COBRA requires the employer to inform the health plan's administrator of a covered employee's qualifying event within 30 days.¹⁰⁴The plan administrator must then furnish the required notice to the qualified beneficiary.¹⁰⁵

ERISA's civil enforcement provision only provides a plan participant or beneficiary a cause of action for failure to notify of COBRA rights against a plan administrator.¹⁰⁶It does not provide for a cause of action for failure to notify of COBRA rights against an employer.¹⁰⁷ Although the Complaint alleges H.I.G. is a qualified employer, it fails to allege that H.I.G. is the plan administrator responsible for sending the Plaintiffs notice.¹⁰⁸A qualified

21

employer is not necessarily a plan administrator.¹⁰⁹The Plaintiffs admit they did not name the plan administrator in the Complaint and argue their failure to do so is an imperfect statement of the legal theory; they ask this Court to infer that H.I.G. did not satisfy its obligation to provide COBRA notice.¹¹⁰However, on its face, there is no allegation in the Complaint with respect to the identity of the plan administrator. The Third Circuit has counseled that a complaint may not be amended by the briefs in opposition to a motion to dismiss.¹¹¹And, courts routinely grant motions to dismiss complaints for failure to adequately identify the plan administrator.¹¹² Accordingly, the Court will grant the Motion as to the fifth cause of action.

VII. The Plaintiffs' Breach of Contract Cause of Action is Pre-Empted by ERISA H.I.G. argues the sixth cause of action, breach of contract, is completely pre-empted by ERISA because if references the employer sponsored health insurance and there is no legal duty implicated by the breach of contract that exists outside of the ERISA plan.¹¹³Second, H.I.G. argues the cause of action is conflict pre-empted because it "relates to" an ERISA plan.¹¹⁴The at *7 (W.D. Mo. June 21, 2017).

22

Plaintiffs assert the cause of action is not pre-empted because it involves independent legal duties, and because the it is "a garden variety damages claim derivative of the breach itself and does not necessitate interpretation of the health care plan itself."¹¹⁵They also argue that regardless of any pre-emption concern, the Court should construe the claim for relief as an ERISA claim moving forward.¹¹⁶

The Employee Retirement Income Security Act ("ERISA") includes expansive pre- emption provisions,¹¹⁷which are intended to ensure that employee benefit plan regulation is

"exclusively a federal concern."¹¹⁸"[A]ny state law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear intent of Congress to make the ERISA remedy exclusive and is therefore pre-empted."¹¹⁹ERISA preempts state law causes of action if two conditions are met: (1) an individual, at some point in time, could have brought the claim under ERISA, and (2) there is no other independent legal duty that is implicated by a defendant's actions.¹²⁰

Denials of coverage promised under the terms of ERISA-regulated employee benefit plans are typically pre-empted.¹²¹Courts regularly hold that causes of action against an

23

employer based on deductions from employee paychecks and a failure to provide health insurance under an employee benefit plan must be brought under ERISA.¹²² The Complaint alleges H.I.G. breached the employment contract it had with the Plaintiffs because it made deductions from the Plaintiffs' monthly paychecks and subsequently failed to provide continued health insurance.¹²³The case law makes clear that state law cause of action based on such allegations are pre-empted by ERISA. The Court will therefore grant the Motion to Dismiss as to the breach of contract claim.

VIII. Punitive Damages are not Available for ERISA Claims H.I.G. argues the claim for punitive damages in connection with the breach of contract must be stricken because ERISA does not authorize such relief.¹²⁴The Plaintiffs counter that the breach of contract claim is not pre-empted by ERISA, and that they have alleged the actions of H.I.G. were made with malice and disregard for the Plaintiffs' rights with the intention design

24

and purpose of injuring them.¹²⁵ Courts have consistently held that ERISA does not authorize punitive damages.¹²⁶The claim for breach of contract is pre-empted by ERISA. The Court will therefore strike the claim for punitive damages.

IX. Leave to Amend the Complaint In their Opposition Brief, the Plaintiffs request leave to amend the Complaint to cure any insufficiencies.¹²⁷H.I.G. argues granting leave to amend the Complaint would be futile because the Plaintiffs have not and cannot provide any factual basis for holding H.I.G. liable for what are really claims for relief against Jenny Craig.¹²⁸H.I.G. further contends that the Plaintiffs fail to identify any additional facts which, even if permitted, could in good faith save their Complaint.¹²⁹

The Supreme Court instructs: "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 deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.—the leave sought should, as the rules require, be 'freely given.'"¹³⁰Likewise, the Third Circuit consistently holds that leave to

25

amend should be granted freely.¹³¹"This approach ensures that a particular claim will be decided on the merits rather than on technicalities."¹³²

The Court disagrees with H.I.G. that there are no additional facts which, if permitted, could save the Complaint. The Court will therefore grant the Plaintiffs leave to amend the Complaint.

CONCLUSION

For the foregoing reasons, the Court will grant the Motion and will grant the Plaintiffs leave to amend the Complaint.

The Court will issue a separate order consistent with this Opinion. Dated: August 13, 2025 _____________________________

J. Kate Stickles

United States Bankruptcy Judge