:: Employer Malpractice Claims Against Service Providers
Preemption under § 514(a) covers “any and all State laws†that “relate to†an ERISA plan. 29 U.S.C. § 1144(a). What is the implication of that provision for employers that assert state law claims, such as negligence or mispresentation, against service providers to their ERISA plans?
The recent case, Kollman v. Hewitt Associates, LLC, — F.3d —-, 2007 WL 1394503 (May 14, 2007), discussed on this site yesterday, included a holding that the plan participant’s state law malpractice claim against a service provider (actuarial consultants) was preempted by ERISA. While that outcome was predictable, it must be distinguished from a long line of cases holding that negligence claims by employers against non-fiduciary service providers are not preempted.
As the Third Circuit noted in Kollman,
A claim that an attorney, accountant or other service provider was negligent does not “relate to†the plan although the negligent act, which provided the basis for the malpractice suit by the plan, may have adversely affected the plan. As the trustee of a plan argued in Sweeney, “professional negligence and malpractice claims against third-party service providers to an ERISA plan do not implicate the essential functions of an employee benefit plan, such as funding, benefits, reporting, and administration….â€
In fact, the ERISA preemption provision, § 514(a), has most frequently been interpreted as not preeempting state law claims against nonfiduciary service providers. The reason: A claim by the plan that a service provider negligently acted in some way causing injury to the plan does not implicate the funding, benefits, reporting or administration of an ERISA plan.
A Broader Look At The Cases
Kollman collected serveral cases in which courts of appeals have held that state law malpractice claims brought by or on behalf of ERISA plans were not preempted. Those cases are:
Gerosa v. Savasta & Co., Inc., 329 F.3d 317, 330 (2d Cir.2003) (a malpractice claim brought by plan trustees against a plan actuary not preempted); Custer v. Sweeney, 89 F.3d 1156, 1167 (4th Cir.1996) (trustee’s state law legal malpractice claim against an ERISA plan’s attorney not subject to ERISA preemption); Airparts Co., Inc. v. Custom Benefit Servs. of Austin, 28 F.3d 1062, 1064 (10th Cir.1994) (ERISA did not preempt state law claims brought by trustees of an ERISA plan against a non-fiduciary firm “hired by plaintiffs to provide expert benefit plan consultationâ€).
Custer v. Sweeney, 89 F.3d 1156, 1167 (4th Cir.1996) represents one of the finest examples of reasoning on the issue. In Custer, the Fourth Circuit enumerated the following reasons that ERISA should not preempt fiduciary state law claims against serviced providers:
1. Such claims do not fall within any of the categories of laws that courts have generally held to be preempted by ERISA: “laws … that provide an alternative cause of action to employees to collect benefits protected by ERISA, refer specifically to ERISA plans and apply solely to them, or interfere with the calculation of benefits owed to an employee.â€
2. Preemption of such claims would not serve any of the policies ERISA was designed to promote inasmuch such claims do not affect the structure, the administration, or the type of benefits provided by an ERISA plan.
3. The law governing negligence represents a traditional exercise of state authority; based upon concerns of federalism, federal courts should be loathe to impute to Congress an intent to displace “a whole panoply of state law in this area†absent some clearly expressed direction.
Need For “Some Interpretation” of ERISA Requirements Does Not Alter Result
The fact that professional malpractice claims require some interpretation of ERISA law does not mean that state law claims are preempted by ERISA. In Custer v. Sweeney, the defendant argued that, since the state law action would require evaluation of advice about federal law, i.e., ERISA, the claims should be preempted.
In rejecting this argument, the Fourth Circuit distinguished Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (1990), in which the Supreme Court held that ERISA preempted a wrongful discharge claim brought under Texas law. In that case, the plaintiff to prove that an ERISA plan existed and that his employer “had a pension-defeating motive in terminating the employment.â€
The Court held that the negligence claims affected neither the core functions performed by ERISA plans nor the central ERISA players, and, therefore, “there is no threat that, by allowing this suit to go forward, conflicting regulations will emerge which will destroy the structural unity of the ERISA scheme.†Though the Fourth Circuit did not elaborate, it is apparent that the wrongful discharge claim in Ingersoll posed a close analogy to an ERISA Section 510 claim.
Additional Cases
To round out treatment of this issue, the case law supporting the view taken in Custer v. Sweeney provides a good starting point The following excerpt is from that case:
Whether ERISA preempts legal malpractice claims against attorneys representing ERISA plans is a question of first impression for the federal circuit courts, although several federal district courts have addressed the issue, uniformly concluding that ERISA does not preempt such claims. See, e.g., Sullivan v. Lampf, Lipkind, Prupis, Petigrow & Labue, 1994 WL 669624 (D.N.J. Nov.21, 1994) (unpublished); Anoka Orthopaedic Associates, P.A. v. Mutschler, 773 F.Supp. 158, 164, 168 (D.Minn.1991). Moreover, the various circuit and district courts that have faced the preemption question in cases involving professional negligence or malpractice claims against other service providers to ERISA plans have declined to read ERISA’s preemptive scope so broadly. See, e.g., Painters of Phila. Dist. Council No. 21 Welfare Fund v. Price Waterhouse, 879 F.2d 1146, 1153 n. 7 (3d Cir.1989) (“ERISA does not generally preempt state professional malpractice actionsâ€); Airparts Co. v. Custom Benefit Services of Austin, Inc., 28 F.3d 1062, 1065 (10th Cir.1994) (consultant); Bourns, Inc. v. KPMG Peat Marwick, 876 F.Supp. 1116, 1122 (C.D.Cal.1994) (auditor); Berlin City Ford, Inc. v. Roberts Planning Group, 864 F.Supp. 292, 296 (D.N.H.1994) (consultant); Mertens v. Kaiser Steel Retirement Plan, 829 F.Supp. 1158, 1162 (N.D.Cal.1992) (actuary); Richards v. Union Labor Life Ins. Co., 804 F.Supp. 1101, 1103-04 (D.Minn.1992) (actuary); Carl Colteryahn Dairy, Inc. v. Western Pa. Teamsters & Employers Pension Fund, 785 F.Supp. 536, 543 (W.D.Pa.1992) (accountants and actuaries); Framingham Union Hosp., Inc. v. Travelers Ins. Co., 721 F.Supp. 1478, 1490 (D.Mass.1989) (accountant); Isaacs v. Group Health, Inc., 668 F.Supp. 306, 312-13 (S.D.N.Y.1987) (actuary). Indeed, Sweeney has not cited a single decision holding that ERISA preempts a malpractice or professional negligence claim against a service provider to an ERISA plan.
See also, Coyne & Delany Co. v. Selman, 98 F.3d 1457 (4th Cir. 1996)
Note: Often the preemption issue will come down to:
- Whether a defendant is a fiduciary or not –
In Penny/Ohlmann/Nieman, Inc. v. Miami Valley Pension Corp., 399 F.3d 692, 698 (6th Cir.2005) (”PONI”), the Sixth Circuit held that ERISA’ preempted an employer’s state-law breach-of-contract claim against a bank, which acted as trustee of employee savings plan and also provided record-keeping and commercial-banking services, but did not preempt a similar state law claims against a defendant that provided record-keeping services as a nonfiduciary. See also, Bank Of Louisiana v. Aetna US Healthcare Inc., 2006 WL 2959792 (October 18, 2006). See, :: Fifth Circuit Rejects Carrier’s ERISA Preemption Defense to State Law Claims
[N.B. The Fifth Circuit extended the perimeter for state law claims in Bank of Louisiana by a careful assessment of the defendant's fiduciary status during different aspects of the contractual relationship ("Nor does Aetna identify any cases holding that a plan administrator who also brokers or negotiates a stop-loss insurance policy does so in its capacity as a fiduciary.")]
- Or whether the plaintiff is an employee or not –
In cases in which the plaintiff is an employee, such as in Kollman, the odds of preemption go up dramatically. As observed in a footnote in the PONI case:
MVP makes the claim that “[a]lmost all Courts of Appeals that have considered the question agree that state causes of action asserted against non-fiduciaries are preempted by ERISA.” MVP Br. at 26. The three circuit court cases which MVP cites, however, involve suits brought by employees to recover plan benefits. See Custer v. Pan Am. Life Ins. Co., 12 F.3d 410, 418 (4th Cir.1993) (finding that an employee’s suit against administrator and underwriter for denied medical benefits was preempted); Gibson v. Prudential Ins. Co., 915 F.2d 414, 417 (9th Cir.1990) (holding that an employee’s suit against agent for denied disability benefits was preempted); Howard v. Parisian, Inc. 807 F.2d 1560, 1565 (11th Cir.1987) (holding that an employee’s claim against plan administrator for denied benefits is preempted). We have previously stated that “state law claims [which go] to the very heart of issues within the scope of ERISA’s exclusive regulation … [are] clearly preempted.” Lion’s Volunteer Blind Indus., Inc. v. Automated Group Admin., Inc., 195 F.3d 803, 808 (6th Cir.1999) (internal quotation marks and citation omitted). This principle holds true even where the suit is brought against a non-fiduciary. Provident Bank, 170 F.3d at 615. Parties may not circumvent the ERISA statutory scheme through state-law causes of action against non-fiduciaries to recover plan benefits.
- Or the standing of the plaintiff –
See, generally,:: The Continuing Controversy Over Standing To Sue Under ERISA
Sixth Circuit View – In PONI, the Sixth Circuit appears to be lining up with the view set forth in Custer v. Sweeney:
Though we have yet to address the issue specifically, other courts of appeals have followed a similar approach and held that ERISA does not preempt state-law claims brought against non-fiduciary service providers in connection with professional services rendered to an ERISA plan. See, e.g., Gerosa v. Savasta & Co., 329 F.3d 317, 330 (2d Cir.2003) (concluding that ERISA does not preempt plan’s state-law claim against an actuary which resulted in severe under-funding of ERISA plan), cert. denied, 540 U.S. 967, 124 S.Ct. 435, 157 L.Ed.2d 312 (2003) and cert. denied, 540 U.S. 1074, 124 S.Ct. 929, 157 L.Ed.2d 744 (2003); Ariz. State Carpenters Pension Trust Fund v. Citibank, 125 F.3d 715, 724 (9th Cir.1997) (concluding that a plan could bring a state-law claim for breach of custodial agreement against a bank as non-fiduciary service provider); Coyne & Delany Co., 98 F.3d at 1466, 1472 (holding that state malpractice claims against insurer for negligently failing to obtain replacement insurance plan was not preempted); Airparts Co. v. Custom Benefit Servs., 28 F.3d 1062, 1066 (10th Cir.1994) (concluding that trustee’s common-law suit against outside financial consultant is not preempted).
The previous excerpt calls into question the observations in Miller v. Retirement Funding Corp., 953 F.Supp. 180, 184 (1996) as to the Sixth Circuit point of view.
