The Supreme Court, Suffolk Superior Court and Ed Zelinsky, All Commenting on the Breadth of ERISA Preemption

Two interesting things worth passing along this week on the topic of ERISA preemption, both reinforcing its breadth. The first is this well-written analysis of preemption out of the state trial court in Massachusetts, unusual for the reason that, normally, if ERISA preemption exists, the case ends up by original or removal jurisdiction in federal court; you seldom see a state trial judge write extensively on this subject as a result. Moreover, you don’t always see any judge write this well and accurately on the subject:

This Court finds that these claims for contribution are barred under the ERISA preemption provision, 29 U.S.C. §1144(a), which supersedes "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . ." 29 U.S.C. §1144(a). "State law" under ERISA is not limited to state statutes; it includes judicial decisions declaring the common law of the state. 29 U.S.C. §1144(c) ("State law" includes "all laws, decisions, rules, regulations or other State action having the effect of law, of any State"). . . . To determine whether State law, namely, the common law of misrepresentation, "relates to" an employee benefit plan and is thus preempted, we must look to Congress's intent. "The purpose of Congress is the ultimate touchstone." Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138 (1990), quoting Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 208, (1985). There can be no doubt that Congress intended that ERISA's preemption provision be broadly construed. See Ingersoll-Rand Co., supra, 498 U.S. at 138; Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 46-47 (1987). The provision's "deliberately expansive" language was "designed to 'establish pension plan regulation as exclusively a federal concern.' " Pilot Life Ins. Co., supra at 46, quoting Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981). See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98-100 (1983). "A law 'relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Id. at 96-97. "Under this 'broad common-sense meaning,' a state law may 'relate to' a benefit plan, and thereby be preempted, even if the law is not specifically designed to affect such plans, or the effect is only indirect." Ingersoll-Rand Co., supra, 498 U.S. at 139, quoting Pilot Life Ins. Co., supra, 481 U.S. at 47.

In spite of its undeniable breadth, ERISA's preemption provision does not apply to every State action that affects an employee benefit plan. "Some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law 'relates to' the plan." Shaw, supra, 463 U.S. at 100 n. 21. . . .Here, the alleged claim under the common law of negligence would directly relate to an ERISA plan because it would require a state court to determine the duty owed by these fiduciaries to an ERISA plan with respect to their investment of Plan monies. See Zipperer v. Raytheon Co., Inc., 493 F.3d 50, 53-54 (1st Cir. 2007) (finding that a negligence claim was preempted because it was based on the defendant's record-keeping responsibilities under an ERISA plan); Donavan v. Robbins, 752 F.2d 1170, 1180 (7th Cir. 1985) (declaring it "extremely unlikely that Congress would have wanted ERISA fiduciaries to be subject to the vagaries of state contribution law"). Even if the Massachusetts common law of negligence were to mirror precisely the fiduciary duty owed under federal ERISA law governing the investment of ERISA funds, the mere possibility that it would differ and be in conflict with ERISA's objectives is sufficient to require this state court to forbear from touching the contribution claim.

The case is Edward Marram as Trustee of the Geo-Centers, Inc. Profit Sharing Plan & Trust v. Kobrick Offshore Fund, Ltd. et al., out of Suffolk Superior Court, and you can find it at 2009 Mass. Super. LEXIS 85.

The second is Edward Zelinsky’s detailed analysis of the Ninth Circuit’s decision on the San Francisco health insurance ordinance, in which he lays out, in formal, analytical fashion, what many of us already concluded on a gut level - that the statute is a preempted invasion of rights controlled only by ERISA, no matter the false distinctions created by the Ninth Circuit in an attempt to avoid that conclusion. Writes Professor Zelinsky (courtesy of the Workplace Prof blog):

An exploration of the most recent decision of the U.S. Court of Appeals for the Ninth Circuit in Golden Gate Restaurant Association v. City and County of San Francisco (Golden Gate III) indicates that ERISA Section 514(a) preempts the San Francisco Health Care Security Ordinance. Two premises guide this exploration of Golden Gate III. First, employers’ ongoing payments to health care administrators, such as insurance companies, constitute employee benefit “plans” for ERISA purposes. Second, employers’ contributions are central features of their employee plans.

This first premise indicates that a San Francisco employer which regularly contributes to San Francisco pursuant to that City’s health ordinance thereby creates a “plan” for ERISA purposes. The ERISA status of this plan purchasing municipally-administered medical services is the same as the ERISA status of an analogous employer-financed plan paying a private administrator for comparable health care: As to all of these plans, ERISA Section 514(a) preempts state and local regulation.

Moreover, it is not persuasive for purposes of ERISA Section 514 to say (as does the Ninth Circuit) that San Francisco, by its health care ordinance, regulates employers’ health care contributions, but not employers’ health care plans. Contributions are central features of employers’ health care plans for their employees. By regulating employers’ contributions, San Francisco regulates employers’ plans.

Frankly, I thought the Supreme Court made clear in an offhand comment in Kennedy v. Dupont that the San Francisco statute, were it to come before it, would be found preempted, when the Court, in a gratuitous aside completely unnecessary to decide the issue before it, commented that a state law is preempted when it would “undermine the congressional goal of ‘minimiz[ing] the administrative and financial burden[s]’ on plan administrators.” Can you think of a better description of what the Rube Goldberg contraption that is the San Francisco ordinance does than that? And the same, by the way, holds true for the equally Rube Goldbergesque Massachusetts health care reform act as well.

Look, once again, many people may want these types of health insurance expanding statutes to exist, and the political consensus in Massachusetts means that such a statute is operating without court challenge, but that doesn’t mean they are not, in fact, preempted. They are, absent an actual change in the scope of preemption by the Supreme Court.