:: Concurrent Jurisdiction Applies In ERISA Dispute

 The threshold issue is whether state courts have jurisdiction to determine the  ERISA status of a plan. The Eighth Circuit directly considered this  question and determined that both state and federal courts have the power to  determine ERISA status. Int’l  Ass’n of Entrepreneurs of Am. v. Angoff, 58 F.3d 1266, 1269 (8th Cir.  1995).  The court  reasoned that because the law was silent on whether states have the power to  decide ERISA status the default rule should apply: “[u]nless instructed  otherwise by Congress, state and federal courts have equal power to decide  federal questions.” Id.

Although the Ninth  Circuit has not addressed this specific issue, it has held that “state courts  amply are able to determine whether a state statute or order is preempted by  ERISA.” Delta  Dental Plan of California, Inc. v. Mendoza, 139 F.3d 1289, 1296-97 (9th Cir.  1998) disapproved of on other grounds by Green  v. City of Tucson, 255 F.3d 1086 (9th Cir. 2001). Other courts that have  addressed this issue have found that both federal and state courts have  jurisdiction to decide the status of an ERISA plan. See Weiner  v. Blue Cross & Blue Shield of Maryland, Inc., 925 F.2d 81, 83 (4th Cir.  1991); Browning  Corp. Int’l v. Lee, 624 F. Supp. 555, 557 (N.D. Tex. 1986). Many courts  have also assumed concurrent jurisdiction to decide ERISA plan status  without specifically addressing the issue. See, e.g., Marshall  v. Bankers Life & Cas. Co., 2 Cal. 4th 1045, 1052-54, 10 Cal. Rptr. 2d  72, 832 P.2d 573 (1992).

Knapp v. Cardinale, 2013 U.S. Dist. LEXIS 98644 (N.D. Cal. July 15, 2013)

Although ERISA issues are typically resolved in federal court, this is not always the case.  Aside from occasional benefit claims disputes (where there is concurrent jurisdiction by statute), questions of preemption frequently arise in state courts as well.

In a recent district court case, the court explored questions of concurrent jurisdiction.  The underlying facts are somewhat curious.

In Knapp v. Cardinale, 2013 U.S. Dist. LEXIS 98644 (N.D. Cal. July 15, 2013), a state court judgment creditor sought to execute on funds held by a purported ERISA plan.    With the creditor in hot pursuit, the path took a sudden turn toward complexity when the defendant asserted ERISA protections against levy.   The creditor, on the other hand, contended that funds in question were “fraudulently transferred to an unqualified, invalid purported ERISA employee pension benefit plan.”

The debtors in the state court action sought to make good on their ERISA defenses by filing a civil action in federal district court.  They asked the federal court to bar the state court from ruling on whether the Plan is a valid ERISA plan entitled to an exemption from levy.

The creditor countered with arguments for a stay or dismissal based upon the Anti-Injunction Act, the Rooker-Feldman Doctrine and the Colorado River Doctrine.

State Court’s Power to Determine If a Purported Plan Is an ERISA Plan

The debtors argued that the state court had no jurisdiction to determine whether the Plan was a legitimate and valid ERISA plan.   The district court concluded that state and federal courts have concurrent jurisdiction on this issue, stating:

The threshold issue is whether state courts have jurisdiction to determine the ERISA status of a plan. The Eighth Circuit directly considered this question and determined that both state and federal courts have the power to determine ERISA status. Int’l Ass’n of Entrepreneurs of Am. v. Angoff, 58 F.3d 1266, 1269 (8th Cir. 1995).   The court reasoned that because the law was silent on whether states have the power to decide ERISA status the default rule should apply: “[u]nless instructed otherwise by Congress, state and federal courts have equal power to decide federal questions.” Id.

Although the Ninth Circuit has not addressed this specific issue, it has held that “state courts amply are able to determine whether a state statute or order is preempted by ERISA.” Delta Dental Plan of California, Inc. v. Mendoza, 139 F.3d 1289, 1296-97 (9th Cir. 1998) disapproved of on other grounds by Green v. City of Tucson, 255 F.3d 1086 (9th Cir. 2001). Other courts that have addressed this issue have found that both federal and state courts have jurisdiction to decide the status of an ERISA plan. See Weiner v. Blue Cross & Blue Shield of Maryland, Inc., 925 F.2d 81, 83 (4th Cir. 1991); Browning Corp. Int’l v. Lee, 624 F. Supp. 555, 557 (N.D. Tex. 1986). Many courts have also assumed concurrent jurisdiction to decide ERISA plan status without specifically addressing the issue. See, e.g., Marshall v. Bankers Life & Cas. Co., 2 Cal. 4th 1045, 1052-54 (1992).

Request for Preliminary Injunction Denied

The debtors primary objective was to halt the state court proceedings.  The district court found no basis for such injunctive relief, noting that (1) California has procedures for execution on money judgments to protect third parties’ interests and (2) the only injury that the Plan might suffer is monetary and “purely monetary injuries are not normally considered irreparable.”

Motion to Dismiss Federal Case Denied

On the other hand, the court denied the creditors motion to dismiss, concluding that: “Although Knapp and Lavoie may be engaged in forum shopping, this court’s holding that the state court has jurisdiction to determine Knapp’s ERISA exemption claim does not necessarily preclude concurrent jurisdiction by this court of plaintiffs’ affirmative claim for a declaration that the Plan is an ERISA plan.”

Multiple proceedings alone are not grounds to dismiss because “overlapping or even identical federal and state court litigation may proceed simultaneously, limited only by doctrines of abstention and comity.” Noel v. Hall, 341 F.3d 1148, 1159 (9th Cir. 2003). The Supreme Court has recognized that this may be inefficient, but our system may require it. See Parsons Steel, Inc. v. First Alabama Bank, 474 U.S. 518, 524 (1986).

Anti-Injunction Act Applies

The Anti-Injunction Act (28 U.S.C. § 2283) forbids federal courts from granting an injunction to stay proceedings in a State court with three exceptions: (1) “as expressly authorized by Act of Congress,” (2) “where necessary in aid of its jurisdiction,” and (3) “to protect or effectuate its judgments.”

The debtor argued  that Act did not apply to bar the injunction.  The argument derived from Section 502(a)(3) of ERISA, which allows a “participant, beneficiary, or fiduciary” to bring a civil action in federal court “to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan” is an express authorization by Congress.

The court held that the Act did apply, stating that:

Because there is no reason why the state courts cannot fairly apply ERISA and there is no express exemption to the Anti-Injunction Act apparent in the text of the law or clear Congressional intent in the legislative history, the court finds the Anti-Injunction Act applies to prohibit a federal district court from enjoining a state court under ERISA.

Rooker-Feldman Doctrine Inapplicable

Since there was no final judgment, the court rejected application of the Rooker-Feldman Doctrine barring district court review of state judgments.

The doctrine only applies if the state court’s ruling “constitutes the final determination of an issue.” Mothershed v. Justices of Supreme Court, 410 F.3d 602, 604 n.1 (9th Cir. 2005). Here, no judgment exists in state court that finally determines the third party claim of Knapp as trustee or resolves the post-judgment issue of whether the Plan is an ERISA plan.

Colorado River Doctrine Inapplicable

The Colorado River Doctrine allows  abstention where a state case raises identical issues in the interest of “wise judicial administration.” See Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 815 (1976).

Nonetheless, the court notes that the doctrine only applies in “exceptional circumstances” because district courts have a “virtually unflagging obligation” to “exercise the jurisdiction given them.” Id. at 818.

After considering the relevant factors, see R.R. St. & Co. Inc. v. Transp. Ins. Co., 656 F.3d 966, 978-79 (9th Cir. 2011), the court does not find that they favor abstention. In particular, although state courts can decide federal law issues, dismissing a federal claim involving application of ERISA would appear inappropriate under the Colorado River Doctrine.

Note:  The debtor had previously attempted to remove the state fraud action to federal court on the basis that Cardinale’s post-trial collection efforts raised a federal question that could only be resolved by the federal court.  The court remanded that action finding that the action was not removable and untimely.

9th Circuit Case Distinguished – Daniels-Hall v. National Education Association, 629 F.3d 992, 997 (9th Cir. 2010) only determined that the federal district court had subject matter jurisdiction and made no finding “about whether or not state courts had concurrent jurisdiction.”

Fraud Issue – “Although not specifically raised in the briefing, the state court can undoubtedly determine whether a transfer was a fraudulent transfer regardless of who received the transferred funds.”

Circuit Split Noted –  The Anti Injunction Act has been addressed in several contexts and the court noted a split of authority:

The circuits have split on whether ERISA contains an express authorization exempting it from the Anti-Injunction Act. Compare Employers Res. Mgmt. Co., Inc. v. Shannon, 65 F.3d 1126, 1131 (4th Cir. 1995) (no express authorization); 1975 Salaried Ret. Plan for Eligible Employees of Crucible, Inc. v. Nobers, 968 F.2d 401, 410 (3d Cir. 1992) (same); Total Plan Services v. Texas Retailers Association, 925 F.2d 142, 144, 145 n. 2 (5th Cir.1991) (same) with Gilbert v. Burlington Industries, 765 F.2d 320 (2nd Cir. 1985) (ERISA does  contain an express authorization); General Motors Corp. v. Buha, 623 F.2d 455 (6th Cir.1980) (same). The parties have directed the court to only one California district court case addressing the issue, which concluded after a short, purely statutory analysis that Congress authorized injunctions of state courts under ERISA. See AT&T Mgmt. Pension Plan v. Tucker, 902 F. Supp. 1168, 1173 (C.D. Cal. 1995).

The circuit court opinions finding no express authorization are more convincing. The Supreme Court has held that courts must construe the exceptions to the Anti-Injunction Act narrowly. Atl. Coast Line R. Co. v. Bhd. of Locomotive Engineers, 398 U.S. 281, 287 (1970). Courts may not ignore the Anti-Injunction Act to “to enjoin state court proceedings merely because those proceedings interfere with a protected federal right or invade an area pre-empted by federal law, even when the interference is unmistakably clear.” Id. at 294. The Court held that “[a]ny doubts as to the propriety of a federal injunction against state court proceedings should be resolved in favor of permitting the state courts to proceed in an orderly fashion to finally determine the controversy.” Id. at 297.

Here, plaintiffs have not provided any evidence of Congressional intent other than the wording of the statute itself. The circuit courts that have examined the legislative history have found no evidence that Congress intended to allow federal courts to enjoin state courts. See 1975 Salaried Ret. Plan, 968 F.2d at 410; Employers Res. Mgmt., 65 F.3d at 1131 (finding Congress did not enact ERISA because “state courts were being used to harass and injure individuals” as was the case for section 1983); U.S. Steel Corp. Plan for Employee Ins. Benefits, 885 F.2d at 1177 (finding no “indication that Congress intended to authorize injunctions against state courts”). There is no indication that Congress distrusted state courts to decide ERISA issues as it did in 1983 claims. In fact, Congress gave state courts concurrent jurisdiction over parts of ERISA suggesting confidence in the state courts abilities to resolve ERISA issues. 29 U.S.C. § 1132(e)(1); see also U.S. Steel Corp. Plan for Employee Ins. Benefits, 885 F.2d at 1177.

More recent circuit court opinions also call into question the continued validity of the Second and Sixth Circuit opinions finding express authorization. The most recent opinion considered all  of the prior circuit court precedent and found the Second and Sixth Circuits arguments for express authorization unpersuasive. Employers Res. Mgmt., 65 F.3d at 1133. It noted that that the Second and Sixth Circuits opinions assumed that ERISA should be treated the same as section 1983 without considering the reasoning behind the Court’s decision in Mitchum. Id. The later circuit opinions have also questioned the reasoning of the two opinions finding express authorization. The Third Circuit considered the Sixth Circuit opinion “questionable” while the Firth Circuit rejected it. 1975 Salaried Ret. Plan, 968 F.2d at 410; Total Plan Services v. Texas Retailers Association, 925 F.2d 142, 144, 145 n.2 (5th Cir.1991).

(The Ninth Circuit has held that ERISA is not an exception to the similar Tax Injunction Act, which prohibits district courts from enjoining state tax collection where it can be resolved in state courts. Chase Manhattan Bank, N.A. v. City & Cnty. of San Francisco, 121 F.3d 557, 558-59 (9th Cir. 1997)).