:: Fourth Circuit Holds Plaintiff Has Standing To Sue, State Law Claims ERISA Preempted
Considering ERISA’s objectives set forth in 29 U.S.C.A. § 1001(b), the Supreme Court has explained that Congress intended ERISA to preempt at least three categories of state law: (1) laws that “mandate[ ] employee benefit structures or their administrationâ€; (2) laws that bind employers or plan administrators to particular choices or preclude uniform administrative practice; and (3) “laws providing alternate enforcement mechanisms†for employees to obtain ERISA plan benefits. . . . A key feature of these categories of laws is that they “implicate the relations among the traditional ERISA plan entities.†. . . . In sum, the district court did not err in ruling that ERISA preempts Appellants’ state-law claims without first establishing NEL’s fiduciary status with respect to each function it served in its relationship with the Plan. Because Appellants’ state-law claims merely repackage Ruffin’s ERISA claim, they are preempted by ERISA. Wilmington Shipping Co. v. New England Life Ins. Co., — F.3d —-, 2007 WL 2216008, (C.A.4 (N.C.)) (August 3 2007)
Wilmington Shipping Co., a pension benefits case, provides a helpful analysis of ERISA preemption from the Fourth Circuit’s point of view. In the court of its ruling, the Fourth Circuit also had occasion to rule on a standing issue as it pertained to terminated plans.
The Facts
New England Life provided investment services to the Wilmington Shipping Co. pension plan. In the course of this function, pension plan funds were invested in real estate under management of one of NEL’s subsidiaries. The investment turned out very poorly and the pension plan ultimately sank into financial ruin.
The ERISA Claims
The plaintiff sued the plan under ERISA § 502(a)(2), alleging that NEL had breached its fiduciary duties to the Plan and caused the Plan severe financial loss. When the defendant asserted that it was not a fiduciary, the plaintiffs amended their complaint to include state law claims:
NEL’s denial of fiduciary status under ERISA led Appellants to move to amend their complaint to add state-law claims against NEL for unfair and deceptive trade practices, breach of contract, negligent misrepresentation, and constructive fraud. NEL opposed Appellants’ motion, arguing that ERISA preempted the proposed state-law claims. On November 21, 2003, the district court granted Appellants leave to amend their complaint to add the state-law claims.
Motion For Summary Judgment
The defendant filed a motion for summary judgment arguing, among other things, that (1) the plaintiff had no standing to sue and (2) the state law claims were preempted.
Plaintiff Had Article III Standing To Sue
The Fourth Circuit addressed the standing issue first in view of the potential jurisdictional defect in the plaintiff’s case. The court rejected the defendant’s arguments, however, holding that the plaintiff had standing under Article III and under ERISA.
The Article III standing issue has been discussed in prior posts. Given the fact-specific nature of the holding on this issue, and that largely in the pension plan context, the Court’s analysis of the issue will not be recounted here.
Suffice it to say that, in ruling on the “injury in fact” aspect of the Article III issue, the representative capacity of the plaintiff was no impediment to Article III standing. The court stated:
That Ruffin is suing on behalf of the Plan does not alter this conclusion, for a plan participant may not sue under ERISA § 502(a)(2) unless he seeks recovery on behalf of the plan. See Mass. Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 140 (1985) (holding that a participant’s action filed pursuant to ERISA § 502(a)(2) must seek remedies that provide a “benefit [to] the plan as a wholeâ€); Horan v. Kaiser Steel Ret. Plan, 947 F.2d 1412, 1417 (9th Cir.1991)(“An individual beneficiary may bring a fiduciary breach claim [under ERISA § 502(a)(2) ], but must do so for the benefit of the plan.â€). Ruffin’s injury is no less concrete because the benefit to him from a favorable outcome in this litigation would derive from the restored financial health of the Plan.
Plaintiff Had ERISA Standing To Sue
The Court’s decision on ERISA standing was presaged by the opening comment that:
It is perhaps a massive understatement to say that the plain language of ERISA § 502(a)(2) favors Ruffin. The statute grants plan participants the right to sue for breach of fiduciary duty without qualification. It does not say that a plan participant can sue for breach of fiduciary duty “until plan termination†or “before plan termination,†just that a participant can sue for breach of fiduciary duty.
The Court further observed that “[o]ur review of ERISA reveals, and NEL concedes, that there is no provision in the statutory scheme that expressly revokes participants’ standing upon termination of the plan.” Thus, “NEL’s various arguments do not overcome the plain language of ERISA § 502(a)(2), which in no uncertain terms grants plan participants standing to sue for fiduciary breaches.”
State Law Claims Preempted
On the other hand, the Court found that the defendants had the better argument on the preemption issue. The simultaneous advocacy of ERISA and state law claims presents a delicate task in the first place. This tension did not go unnoticed by the Court, which observed:
Appellants’ state-law claims against NEL consist of claims under North Carolina law for unfair and deceptive trade practices, breach of contract, negligent misrepresentation, and constructive fraud. Each of these claims incorporates the allegations from Ruffin’s ERISA claim. Appellants also set forth independent factual allegations to support each of the claims, but these allegations largely, if not completely, restate the general allegations underlying Ruffin’s ERISA claim. . . . Indeed, Appellants acknowledge that their state-law claims “arise from the same factual circumstances as [Ruffin's] ERISA claim.â€
Fiduciary Status Not Determinative
It was the denial of fiduciary status that led the plaintiff to add the state law claims. At that point, however, the plaintiff had committed to a set of facts that tilted toward an ERISA case. As the Court noted:
Indeed, Appellants candidly characterize their state-law claims as “alternatives†to Ruffin’s ERISA claim, a good tip off that they seek the kind of “alternate enforcement mechanism[ ]†that ERISA preempts.
The fiduciary status of the defendant, however, was not a mutually exclusive predicate for survival of state law claims. Thus, the Court held that “Appellants’ wait-and-see argument is unavailing”.
We have held that ERISA preempts state-law claims against nonfiduciaries if those claims relate to a plan. Custer v. Pan Am. Life Ins. Co., 12 F.3d 410, 419 (4th Cir.1993). The central question is not whether a particular defendant is a fiduciary, or whether the preemption decision would create a gap in the law with respect to suits against nonfiduciaries, “but rather [ ] whether the action relates to any employee benefit plan.
Note: ERISA § 502(a)(2) provides that “[a] civil action may be brought-by the Secretary [of Labor], or by a [plan] participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title.†See, 29 U.S.C.A. § 1132(a)(2).
Fiduciary Status/Preemption Analysis - On the relationship of fiduciary status to preemption, note the following collected cases:
Consol. Beef Indus., Inc. v. N.Y. Life. Ins. Co., 949 F.2d 960, 964 (8th Cir.1991)(“Whether [an entity] is a fiduciary under ERISA or not does not affect our ERISA preemption analysis.â€); Gibson v. Prudential Ins. of Am., 915 F.2d 414, 418 (9th Cir.1990) (“Congress intend[ed] ERISA to preempt claims that relate to an employee benefit plan even if the defendant is a nonfiduciary.â€); Howard v. Parisian, Inc., 807 F.2d 1560, 1565 (11th Cir.1987) (holding that Congress’s failure to provide for comprehensive relief against nonfiduciaries does not alter the principle that state-law actions against nonfiduciaries are preempted if they relate to an ERISA-covered plan).
See also - Threading The Standing Needle: A Closer Look At Representative Claims By Plan Participants
