Summary
In Retail Shoe, Reminick also claimed, like Shuler, that since a legal or accounting consultant is not empowered to bring an ERISA action, then ERISA would preclude their third-party claims.
Summary of this case from New Orleans Sheet Metal Worker's v. ABC Insurance Co.Opinion
Argued March 28, 1984
Decided May 17, 1984
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, Orest V. Maresca, J.
Arthur D. Felsenfeld and Martin I. Shelton for appellants.
Andrew R. Simmonds, Robert E. Meshel and William M. Ried for Charles G. Reminick and others, third-party plaintiffs-respondents. Dorit S. Heimer and Peter N. Wang for Tolley International Corporation, third-party defendant-respondent.
The pre-emptive provisions of ERISA govern the judicial determination of breach of fiduciary duty claims against the trustees of an employee welfare benefit plan within the embrace of that Act and preclude actions in State courts for the enforcement of such claims. Accordingly, where such a plan has brought an action in our State courts against its accountants and consultants for their alleged failure to detect and report substantial misappropriations by the administrator of the plan, our courts are foreclosed from entertaining claims over by the accountants and consultants against the individual trustees of the plan for contribution or indemnity based on allegations that breach of their fiduciary duties by the trustees contributed to the losses sustained by the plan.
In the initial action, Retail Shoe Health Commission, a collectively bargained, multiemployer, jointly administered Welfare Fund (Fund), and the individual trustees of the Fund sought to impose liability on Reminick, Aarons Company, a partnership, and its individual partners on the theory that as public accountants and auditors of the Fund they had failed and neglected to detect and report the misappropriation by Jerome Simon, the administrator of the Fund, of some $675,000 of Fund assets. Reminick then served a third-party complaint against the trustees individually and Tolley International Corporation (which had been engaged by the Fund to provide actuarial and consulting services), seeking judgment over by way of contribution or indemnity or both. Tolley thereupon served counterclaims against Reminick, the Fund and the trustees individually as well as a cross claim against the trustees individually, all similarly seeking contribution or indemnification or both.
The individual trustees moved to dismiss the third-party complaint of Reminick and the counterclaim and cross claim of Tolley on the ground that the court lacked subject matter jurisdiction of the claims and that Tolley lacked standing to sue. The theory of the motion to dismiss was that the various claims against the individual trustees were governed and controlled by the provisions of the Employee Retirement Income Security Act of 1974 (ERISA, 88 US Stat 829, US Code, tit 29, § 1001 et seq.) and that dismissal was mandated to give effect to the resulting Federal pre-emption.
Supreme Court denied the motion to dismiss, holding that ERISA does not pre-empt State law when a vital State interest is involved and is tangential to the employee benefit plan and that the stated causes of action for contribution and indemnification came within such exception. The Appellate Division affirmed, without opinion, and granted the individual trustees leave to appeal to our court on a certified question. We reverse.
Inasmuch as it is undisputed that the Fund is an employee welfare benefit plan within the embrace of ERISA (ERISA, § 3, subd [1], US Code, tit 29, § 1002, subd [1]), resolution of the issues posed on this appeal turns on the effect the provisions of ERISA have on the claims here sought to be dismissed.
We start with the ineluctable premise that the Federal law pre-empts State regulation of ERISA employee benefit plans. The Act provides expressly that its provisions shall supersede all State laws insofar as they may relate to any employee benefit plan within its embrace. The individual trustees are fiduciaries within the meaning of subdivision (21) of section 3 of ERISA (US Code, tit 29, § 1002, subd [21]) and the gravamen of the claims of both Reminick and Tolley against them is breach of fiduciary duties (i.e., that the trustees should have known of the embezzlements and defalcations of Simon, that they permitted and condoned his misconduct, that by acts of omission and commission they participated in that misconduct, that they breached their obligation to report such misconduct, and in general that they are liable in consequence of breaches of duty, want of due care, and other fault). As a matter of substantive law, the nature and scope of the duties and liability of the trustees in this regard are determinable under the provisions of ERISA (e.g., ERISA, §§ 404, 405, 409, US Code, tit 29, §§ 1104, 1105, 1109). It is substantive claims of just this character that fall squarely within the scope and thus the pre-emption of ERISA.
ERISA (§ 514, subd [a], US Code, tit 29, § 1144, subd [a]) provides in pertinent part:
"(a) * * * [T]he provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan * * *
"(c) For purposes of this section:
"(1) The term `State law' includes all laws, decisions, rules, regulations, or other State action having the effect of law, of any State."
The question then arises as to whether these claims may be asserted in a State court action such as the present. Here again, it is the provisions of ERISA which are determinative. Subdivision (e) of section 502 of ERISA (US Code, tit 29, § 1132, subd [e]) provides that the District Courts of the United States shall have exclusive jurisdiction over civil actions arising under ERISA (with an exception not now pertinent). Accordingly, we are obliged to conclude that the present claims asserted by Reminick and Tolley against the trustees may not be entertained in our State courts.
This provision reads as follows:
"(e)(1) Except for actions under subsection (a)(1)(B) of this section [actions by a participant or beneficiary to recover benefits or to enforce rights under the plan, see n 3, infra], the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, or fiduciary. State courts of competent jurisdiction and district courts of the United States shall have concurrent jurisdiction of actions under subsection (a)(1)(B) of this section.
"(2) Where an action under this subchapter is brought in a district court of the United States, it may be brought in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found, and process may be served in any other district where a defendant resides or may be found."
Reminick and Tolley argue that because they do not come within the literal terms of subdivision (a) of section 502 of ERISA, which lists the persons empowered to bring a civil action under the Act, the Congress cannot have intended that ERISA would preclude their claims. This argument is wide of the mark. Inasmuch as ERISA preempts all claims based on alleged breach of fiduciary duty on the part of ERISA trustees and vests jurisdiction for their enforcement exclusively in the Federal courts, the circumstance that persons in the outboard position of Reminick and Tolley may have no statutory standing to bring such an action under the Federal regulatory scheme is merely an aspect of that scheme. If there is a deficiency or inequity in the scope of subdivision (a) of section 502, it is attributable to the Act itself and any petition for remedy or correction must be addressed to the Congress.
ERISA (§ 502, subd [a], US Code, tit 29, § 1132, subd [a]) provides in relevant part:
"Persons empowered to bring civil action
"(a) A civil action may be brought —
"(1) by a participant or beneficiary —
"(A) for the relief provided for in subsection (c) of this section, or
"(B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan;
"(2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title;
"(3) by a participant, beneficiary or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan;
"(4) by the Secretary, or by a participant, or beneficiary for appropriate relief in the case of a violation of 1025(c) of this title".
The same response must be made to the arguments of Reminick and Tolley that they are entitled to assert their claims for contribution and indemnity under State law (e.g., CPLR art 14; Dole v Dow Chem. Co., 30 N.Y.2d 143) in our State courts. The State laws in this regard, too, have been superseded and the claims pre-empted under ERISA (cf. Michota v Anheuser-Busch, Inc., Nos. 76-193, 77-2543 [DCNJ, decided Oct. 7, 1983, unpublished opn]).
Finally, Tolley argues that there should at least be no dismissal of its claims against the individual trustees to the extent that they arise out of transactions which took place prior to January 1, 1975, the effective date of ERISA. It is accurate to say, of course, that ERISA pre-emption does not apply with respect to any act or omission which occurred prior to that date (ERISA, § 514, subd [b], par [1], US Code, tit 29, § 1144, subd [b], par [1]). Tolley did not, however (nor did the Fund and the individual trustees in the initial action) plead claims based on pre-1975 transactions separately or seek discrete relief with respect thereto; Tolley's pleading of all claims is lumped in a single cause of action which must stand or, in this instance, fall as a unit. Nevertheless, our dismissal of Tolley's pleadings now before us is without prejudice to the right of Tolley, if it be so advised, to apply at Supreme Court for leave to replead to state separately claims it would assert based on acts and omissions that occurred prior to January 1, 1975.
For the foregoing reasons the order of the Appellate Division should be reversed, with costs, the motion of the individual trustees granted, and the counterclaim, the cross claims, and the third-party complaint against them dismissed, without prejudice to the right of Tolley to apply for leave to replead as indicated.
Judges JASEN, MEYER and SIMONS concur with Judge JONES; Judge KAYE dissents and votes to affirm in a separate opinion in which Chief Judge COOKE and Judge WACHTLER concur.
Order reversed, with costs, motion of the individual trustees granted, and the counterclaim, cross claims and third-party complaint against them dismissed, without prejudice to the right of Tolley International Corporation to apply for leave to replead as indicated in the opinion herein. Question certified answered in the negative.
This case centers on the misappropriation of approximately $675,000 from the Retail Shoe Health Commission (the Fund), an employee welfare benefit plan, by its former administrator, Jerome Simon. The Fund and its individual trustees brought suit in State court against the Fund's former accountants on three theories: first, that the accountants breached their contract to audit the Fund's books and records, enabling Simon to divert the funds; second, that the accountants were negligent, resulting in the loss; and third, that they "are obligated to indemnify plaintiffs for their loss". Respondents' affirmative defense, cross claim, counterclaim and third-party claim allege that the trustees themselves failed in their own fiduciary responsibilities to the Fund, which caused or contributed to the loss. By these allegations they seek no affirmative recovery, but only to apportion liability for Simon's tortious conduct among the parties to this action, all of whom allegedly shared responsibility for monitoring the operation of the Fund. The pleadings assert common-law claims, and do not mention ERISA.
Appellants have not sought to strike respondents' affirmative defense, which thus remains part of the action, raising the very issues this court concludes are beyond the jurisdiction of the State court.
Assuming the truth of respondents' allegations, as we must on this motion to dismiss, the result reached by the court allows the trustees to escape responsibility for losses due in whole or in part to their own derelictions, and leaves respondents with a potential massive liability and no effective remedy against plaintiffs who are also wrongdoers. I do not believe that ERISA requires this unpalatable result, and therefore would affirm the order below.
ERISA allows a civil action to be brought by the Secretary of Labor or a participant, beneficiary or fiduciary (US Code, tit 29, § 1132, subd [a]) and in such actions it provides for exclusive Federal jurisdiction: "Except for actions under subsection (a)(1)(B) of this section, the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, or fiduciary" (US Code, tit 29, § 1132, subd [e], par [1]). A pivotal assumption underlying the majority's holding is that respondents' claims are barred because they are not within the classes of persons authorized to bring a civil action under ERISA. But a claim for relief is not necessarily pre-empted or extinguished because the initiating party falls outside the enumerated categories of subdivision (a) of section 1132. (See Franchise Tax Bd. v Construction Laborers Vacation Trust, 463 U.S. 1.)
Nor is the provision for exclusive Federal jurisdiction a bar to entertaining respondents' claims. First, that provision applies, by its own terms, only to actions brought by the enumerated persons, which do not include respondents. Second, it is well established that even where statutes preempt State law and provide for exclusive Federal jurisdiction State courts may, applying Federal law, decide issues necessary to the resolution of State causes of action ( Hathorn v Lovorn, 457 U.S. 255, 266, n 18; Pan Amer. Corp. v Superior Ct., 366 U.S. 656, 664-665). Though the exclusive jurisdiction provision of ERISA might prohibit the commencement of a State court action seeking affirmative relief against the trustees for their derelictions as trustees, it still would not prevent the State court from considering such questions when they are part and parcel of defenses to a cause of action premised on State law. (See, e.g., Weiner v Shearson, Hammill Co., 521 F.2d 817; Shareholders Mgt. Co. v Gregory, 449 F.2d 326; Birenbaum v Bache Co., 555 S.W.2d 513 [Tex]). The same rationale should apply here. Sustaining respondents' claims against the trustees would not alter substantive rights created by ERISA or disturb any allocation of responsibility among employers subject to ERISA ( Michota v Anheuser-Busch, Inc., Nos. 76-193, 77-2543 [DCNJ, decided Oct. 7, 1983, unpublished opn]), but would simply allow respondents to maintain apportionment claims in one action, as is common in tort cases in the State courts.
Since the result reached by the courts below complied with the State law and transgressed no overriding Federal interest, I vote to affirm.