:: ERISA Preemption Defense Lost By Waiver
Rule 8(c) of the Federal Rules of Civil procedure states that “[i]n pleading to a preceding pleading, a party shall set forth affirmatively … any … matter constituting an avoidance or affirmative defense.†Where such affirmative defenses are not pled in the response to a pleading they are typically held to be waived and cannot be introduced into litigation at any later stage. Federal preemption under ERISA has been viewed by many courts to constitute just such an affirmative defense under Rule 8(c). Old Line Life Ins. Co. of America v. Garcia, 2007 WL 4126516 (E.D.Mich.) (November 19, 2007)
The navigation of procedural hurdles in asserting ERISA preemption defenses poses a more complex task than often assumed. Aside from the issues of whether a case is removable and the procedural requirements attending proper removal based upon federal question jurisdiction, a recent district court case reminds us that the ERISA preemption defense may simply be waived altogether under Fed. R. Civ. P. 8(c).
The Facts
Rule 8(c) of the Federal Rules of Civil procedure states that “[i]n pleading to a preceding pleading, a party shall set forth affirmatively … any … matter constituting an avoidance or affirmative defense.â€
The specific nature of the dispute between Garcia and Plaintiff Old Line Life Insurance Co. of America (”Old Line”) is not disclosed in the opinion, nor is it necessarily important. The key fact for our purposes is that, in the context of a counterclaim by Garcia against Old Line, Old Line did not raise ERISA preemption as a defense in its responsive pleadings.
Garcia argued that he was prejudiced as a result of Plaintiff Old Line waiting to raise its ERISA defense until after the close of discovery, and mentioning the affirmative defense for the first time in its Motion for Summary Judgment, nearly one year after the filing of Garcia’s counter-claim.
Is The Defense Of ERISA Preemption Waivable?
The first question before the district court then, was whether ERISA preemption could be waived. The court framed the issue thusly:
Those circuits that have explicitly decided the issue of whether or not federal preemption defenses fall under Rule 8(c) have consistently reasoned from the holding of the United States Supreme Court in Int’l Longshoremen’s Ass’n v. Davis, 476 U.S. 380, 106 S.Ct. 1904, 90 L.Ed.2d 389 (1986). See, e.g. Saks v. Franklin Covey Co., 316 F.3d 337, 349-50 (2d Cir.2003). The Supreme Court in Davis held that preemption issues determining the choice of forum are properly classified as jurisdictional and cannot be waived. See Davis, 476 U.S. at 390-391.
However, the Court expressly stated that this rule does not extend to preemption issues that affect the parties’ choice of law. Id; see also Saks, 316 F.3d at 349. Therefore, the Court in Saks found that, “[t]he circuits that have addressed the waiver issue have agreed that the converse of the Davis rule also holds: Where federal preemption affects only the choice of law, the defense may be waived if not timely raised.†Id.
Choice Of Law Or Choice Of Forum?
Applying the Supreme Court’s holding in Davis, the district court noted that the courts of appeal facing the issue have held that the defense of ERISA preemption is one of choice of law. In the words of the court:
At least five circuits have followed this or a similar line of reasoning to determine that preemption defenses affecting choice of law, like ERISA preemption, may be waived if not timely raised.
The district court cited:
- Wolf v. Reliance Standard Life Ins. Co., 71 F.3d 444, 448-49 (1st Cir.1995);
- Saks v. Franklin Covey Co., 316 F.3d 337, 349-50 (2d Cir.2003);
- Gilchrist v. Jim Slemons Imports, Inc., 803 F.2d 1488, 1497 (9th Cir.1986) (holding that ERISA preemption of state contract claims is an affirmative defense waived if not timely pled);
- Rehab. Inst. of Pittsburgh v. Equitable Life Assurance Soc’y of United States, 131 F.R.D. 99, 101 (W.D.Pa.1990), af’d without opinion, 937 F.2d 598 (3d Cir.1991) (holding that the defendant should have been put on notice from prior case law that it was required to “plead preemption as an affirmative defense†and affirmed that “ERISA preemption is a waivable affirmative defenseâ€);
- Dueringer v. Gen. Am. Life Ins. Co., 842 F.2d 127, 129-30 (5th Cir.1988) (where an ERISA preemption defense was held to be waived because the defendant did not raise it until appeal).
The district court went on to say that:
Although considering a different matter of whether a choice of law provision could preclude the assertion of ERISA preemption, this Court referenced with approval the above cited cases, finding “these five circuit opinions correctly held that such procedural waiver of ERISA preemption is permissible.†Allstate Ins. Co. v. My Choice Medical Plan for LDM Techs, Inc., 298 F.Supp.2d 651, 655-56 (E.D.Mich.2004) (Gadola J.).
The ERISA Preemption Defense Is Waivable
Based upon the foregoing authorities, the district court held that ERISA preemption is an affirmative defense that may be waived if not timely plead. At this point, the court turned its attention to whether Old Line waived the ERISA preemption defense.
A Question Of Prejudice
Here the question turns to one of prejudice. Here’s the general rule:
The Sixth Circuit Court of Appeals . . . stated that “[a]s a general rule, failure to plead an affirmative defense results in a waiver of that defense. E.g., Phelps v. McClellan, 30 F.3d 658, 663 (6th Cir.1994).†In exceptional circumstances, an affirmative defense not raised in the responsive pleading has not been waived.
The Court cited Moore, Owen, Thomas & Co. v. Coffey, 992 F.2d 1439, 1445 (6th Cir.1993) as an example of an instance in which failure to plead an affirmative defense did not constitute a waiver. In that case, the Court did not find any element of surprise to the other party, nor did the other party claim any prejudice to their case as a result of the defense not being timely raised). See also Smith v. Sushka, 117 F.3d 965, 969 (6th Cir.1997) (where an affirmative defense was not held to be waived despite not being timely pled because the court found no surprise or unfair prejudice occurred as a result).
Succinctly stated:
In determining what constitutes prejudice, the court considers whether the assertion of the new claim or defense would: require the opponent to expend significant additional resources to conduct discovery and prepare for trial; significantly delay the resolution of the dispute; or prevent the plaintiff from bringing a timely action in another jurisdiction. Phelps v. McClellan, 30 F.3d 658 (6th Cir.1994)
Too Much Time = Prejudice
The district court noted that Old Line waited nearly a year to raise its ERISA preemption defense. The court found significant delay and surprise. At the same time, Old Line presented “no reason why this defense was not raised in a timely manner.”
Furthermore, although Old Line maintains that there will be no prejudice to Garcia, the Court finds otherwise. There has been considerable delay in this matter and the assertion of such a defense at such a late date would drastically change the litigation theory of the parties. See e.g., A. Cherney Disposal Co., 68 F.R.D. at 386; Oy Tilgmann, AB, 110 F.R.D. at 70-71.
Note: The court noted that the policy of Rule 8(c) was to avoid unfair surprise, prejudice, and delay. Thus, arguments that the defense has been waived should be argued and defended on these grounds.
Compare - Waiver issues have been previously discussed on this site in the instance of Arbaugh v. Y & H Corp. 546 U.S. 500 (2006) (numerosity requirement of § 701(b) of the Civil Rights Act, which limits the applicability of Title VII to employers with at least fifteen employees) and Thomas v. Miller, — F.3d —-, 2007 WL 1827293 (C.A.6 (Mich.) (June 27, 2007) (numerosity requirement of 20 or more employees for application of COBRA, 29 U.S.C. § 1161(b)). :: COBRA Requirements May Apply To Employers Having Less Than 20 Employees
Query - Was the district court correct? The answer is difficult to assess on the limited facts provided. ERISA claims can constitute a choice of forum issue, not just a choice a law issue. In a Section 502(A)(1)(B) claim for benefits, the issue is one of choice of law. This is because state and federal courts have concurrent jurisdiction of such claims.
State courts of competent jurisdiction and district courts of the United States shall have concurrent jurisdiction of actions,†29 U.S.C. § 1132(e)(1), “brought by a participant or beneficiary to recover benefits due.†29 U.S.C. § 1132(a)(1)(B).
The First Circuit opinion cited by the district court recognized this distinction:
Our holding is limited to ERISA preemption of benefits-due actions. ERISA permits several other types of civil actions (e.g., for injunctive relief, for breach of fiduciary duty, etc.) subject to exclusive jurisdiction in the federal courts rather than concurrent jurisdiction. See 29 U.S.C. §§ 1132(a)(1)(A), 1132(a)(2)-(6), 1132(e)(1). Wolf v. Reliance Standard Life Ins. Co., 71 F.3d 444, 448-49 (1st Cir.1995)
So, if the issue before the court were a claim for benefits issue, the court would be correct. The posture of the Garcia case (e.g., the counterclaim), however, gives some reason to doubt that the ERISA issue was limited to a claim for benefits.
See also - :: The Hazards Of Improper Removal of State Law Cases To Federal Court ; :: Provider Claims Against Aetna Remanded To State Court: A Suggested Checklist of Removal Factors
