:: Contribution Among ERISA Fiduciaries? – The Eighth Circuit Weighs In On the Issue
The first issue raised on appeal is whether the “federal common law of rights and obligations under ERISA-regulated plans,†Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987), should provide that an ERISA fiduciary found liable for violating its obligations under the statute may bring an action for contribution against another fiduciary that allegedly bears some responsibility for the violations. We conclude that there is no right of contribution under ERISA. Travelers Cas. and Sur. Co. of America v. IADA Services, Inc., — F.3d —-, 2007 WL 2317374 (C.A.8 (Iowa)) (August 15, 2007)
Say an employer has to pay substantial sums in restitution and civil penalties for a fiduciary breach that it contends was caused, all or in part, by its third party administrator. Does ERISA provide a remedy? Most employers would probably think so – but this recent Eighth Circuit decision holds otherwise.
The case presents one of those tri-fold considerations frequently found in the ERISA context – (1) what is an equitable result, (2) what does ERISA require, and (3) to the extent ERISA is vague or silent on the issue, what is the policy that best serves ERISA’s purposes.
Having paid $291,667.00 in restitution and a penalty of $58,333.40 on behalf ERISA plan trustees (its insureds), Travelers sought to share some of its ill fortune with IADA Services, Inc., the company providing administrative services to the ERISA trust. (By making the payments on behalf of the trustees, Travelers assumed any right of recovery the trustees might have against other parties.)
The District Court Proceedings
The case arrived in the U.S. District Court by way of removal of Traveler’s state court action. Travelers then filed an amended complaint, which asserted claims for indemnification, contribution, and restitution under both ERISA and state common law. The district court ruled for IADA Services, Inc. on its motion for summary judgment, holding that ERISA’s remedial scheme does not include a right of contribution and that Traveler’s state common-law claims were preempted by ERISA.
Appeal To The Eighth Circuit
The Eighth Circuit phrased the issue as follows:
whether the “federal common law of rights and obligations under ERISA-regulated plans,†Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987), should provide that an ERISA fiduciary found liable for violating its obligations under the statute may bring an action for contribution against another fiduciary that allegedly bears some responsibility for the violations.
Analogous Supreme Court Authority?
The Eighth Circuit looked to other federal statutes where the Supreme Court had declined to imply a right of contribution. The Court observed that:
. . . the Supreme Court has declined to recognize a federal common-law right of contribution under three other federal statutes. In Northwest Airlines, Inc. v. Transport Workers Union, 451 U.S. 77, 101 S.Ct. 1571, 67 L.Ed.2d 750 (1981), the Court held that the judiciary was not authorized to create a right of contribution for an employer that was liable for discriminating against employees in violation of the Equal Pay Act and Title VII of the Civil Rights Act. The Court reasoned that “[t]he presumption that a remedy was deliberately omitted from a statute is strongest when Congress has enacted a comprehensive legislative scheme including an integrated system of procedures for enforcement.†Id. at 97. Because the two statutes in question each established a comprehensive legislative scheme, the Court held that the judiciary may not “fashion new remedies that might upset carefully considered legislative programs.†Id.
In Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 101 S.Ct. 2061, 68 L.Ed.2d 500 (1981), the Court for similar reasons declined to fashion a common-law rule of contribution among antitrust wrongdoers. Observing that the statutory scheme had existed for ninety years without amendment, and that nothing in the statute suggested that Congress intended courts to alter or supplement the remedies enacted, the Court declined to assert the “broad power†to formulate a right of contribution. Id. at 646.
Based upon the foregoing cases, the Eighth Circuit rejected Traveler’s argument that the Court should draw upon the common law authority of the federal courts under ERISA to fashion a contribution remedy, noting that:
Despite the authority to develop federal common law under ERISA, the Supreme Court has emphasized time and again that the statute’s “carefully crafted and detailed enforcement scheme provides ‘strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly.’ “ Mertens v. Hewitt Assocs., 508 U.S. 248, 254, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993) (quoting Russell, 473 U.S. at 146-47). Because ERISA is “a comprehensive and reticulated statute, the product of a decade of congressional study of the Nation’s private employee benefit system,†the Court has been “especially reluctant to tamper with [the] enforcement scheme embodied in the statute by extending remedies not specifically authorized by its text.†Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 209, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002) (internal quotations omitted).
State Law Remedies Preempted
The Court further held that Traveler’s state law claims were preempted, stating:
We also agree with the district court that the state common-law claims brought by Travelers are preempted by ERISA. ERISA’s comprehensive legislative scheme not only generates a strong presumption against creating additional federal remedies, it also has a strong preemptive effect on state-law causes of action. Section 502(a), 29 U.S.C. § 1132(a), sets forth a comprehensive civil enforcement scheme that includes a opportunity for a fiduciary to obtain “appropriate equitable relief†in certain circumstances. Id. § 1132(a)(3)(B).
Note: The Eighth Circuit refusal to incorporate a right of contribution into ERISA’s remedial scheme probably constitutes the correct result under Supreme Court authority. As observed in the opinion, the Supreme Court relied directly on its decisions in Northwest Airlines and Texas Industries-(declining to recognize a right of contribution among joint wrongdoers under other federal statutes) in addressing ERISA’s “comprehensive legislative scheme” in Russell (See, 473 U.S. at 147 & n. 15 (quoting Northwest Airlines and citing Texas Industries )).
Split In The Circuits - On the other hand, the opinion notes a differing view in the Second Circuit:
We recognize that a divided panel of the Second Circuit in Chemung Canal Trust Co. v. Sovran Bank/Maryland, 939 F.2d 12 (2d Cir.1991), concluded that Northwest Airlines and Texas Industries were distinguishable, because the Supreme Court in those cases had drawn a contrast with other areas of law, such as admiralty, where “[the] power to fashion rules of federal common law is well established.†Id. at 17. . . . For reasons we explain here, we think the dissenting opinion in Chemung Canal and the unanimous panel of the Ninth Circuit in Kim v. Fujikawa, 871 F.2d 1427, 1432 (9th Cir.1989), express the better view that a right of contribution is not available.
Policy Considerations - On the policy issue, the Court observed that:
There are policy arguments for and against a right of contribution among joint wrongdoers. Although the common law of trusts and some federal statutes provide for contribution rights, see Texas Industries, 451 U.S. at 640 n. 11, other statutes do not. See id. at 646; Northwest Airlines, 451 U.S. at 98. There are certainly equitable arguments for allowing contribution among wrongdoers, see Chemung Canal, 939 F.2d at 16, but there are considerations weighing on the other side. Some have argued that a contribution rule is inefficient, because it increases administrative costs without increasing deterrence, William M. Landes & Richard A. Posner, The Economic Structure of Tort Law 201-02 (1987), and a legislature may conclude that it could maximize the deterrent effect of civil liability by declining to “ameliorate the liability of wrongdoers†through contribution rights. See Texas Industries, 451 U.S. at 639. We find apt the observation of the Supreme Court that whether to provide for a right of contribution is “ ‘a matter of high policy for resolution within the legislative process after the kind of investigation, examination, and study that legislative bodies can provide and courts cannot.’ “ Id. at 647 (quoting Diamond v. Chakrabarty, 447 U.S. 303, 317, 100 S.Ct. 2204, 65 L.Ed.2d 144 (1980)). Accordingly, we hold that ERISA does not create a right of contribution for Travelers against IADA Services, another fiduciary.
Preemption of State Law Remedies - The reason for the tension in such cases arises from the conclusion that state law remedies are preempted. On this question, the Eighth Circuit failed to give sufficient analysis to the retrenchment of ERISA preemption in disputes between employers and service providers. Consider, e.g.,
“As we have noted, ERISA may preempt some claims between traditional ERISA entities but not others . . . And a party may qualify as an ERISA fiduciary with regard to some claims but not others. See Pegram v. Herdrich, 530 U.S. 211, 225-26 (2000) (ERISA defines party as fiduciary “only ‘to the extent’ that he acts in such a capacity in relation to a planâ€) (quoting 29 U.S.C. § 1002(21)(A)). “[T]he critical determination [is] whether the claim itself created a relationship between the plaintiff and defendant that is so intertwined with an ERISA plan that it cannot be separated.â€
Bank Of Louisiana v. Aetna US Healthcare Inc., 2006 WL 2959792 (October 18, 2006)
The opinion does not provide sufficient detail as to the initial state law claims asserted by Traveler’s, and depending on the facts, the issue could go either way.
See also -:: Court Permits ERISA Contribution Claim By Claims Administrator Against Insurance Broker; :: Court Holds ERISA Does Not Permit Suit For Contribution
