Liberty Mutual v. Donegan: The Second Circuit Reinforces the Broad Scope of ERISA Preemption

The Second Circuit has just released its opinion in Liberty Mutual v. Donegan, which concerns whether certain Vermont state reporting regulations are preempted as applied to an ERISA governed plan. The Court concluded that they were, but the more interesting part of the opinion is not its analysis of that particular issue, but rather its sweeping and accurate march through the history of Supreme Court ERISA preemption jurisprudence. It’s a welcome document, one that can be read both by any practitioner seeking a general understanding of the issue and, moreover, by any court or litigant seeking a starting point for an in-depth argument over the scope of preemption.

To me, one of the more significant aspects of the opinion is its focus on the fact that preemption is invoked by any state regulations that dictate plan terms, reporting or benefits in a manner that places the plan at risk of having to comply with multiple conflicting state requirements, as well as ERISA’s own requirements. This is a broad holding that reinforces this widely applied, but often contested, rule of ERISA preemption, and extends beyond the narrow, specific confines of the specific state reporting requirements at issue in Donegan. In this vein, it is interesting that the Court launched its analysis with this point:

ERISA broadly preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” Id. § 1144(a). With remarkable consistency, the legislative history reflects that this broad wording was purposeful: it was intended to eliminate the threat of a multiplicity of conflicting or inconsistent state laws . . . See 120 Cong. Rec. 29197 (1974) (Statement of Rep. Dent) (“I wish to make note of what is to many the crowning achievement of this legislation, the reservation to Federal authority the sole power to regulate the field of employee benefit plans. With the preemption of the field, we round out the protection afforded participants by eliminating the threat of conflicting and inconsistent State and local regulation.”); id. at 29933 (Statement of Sen. Williams) (discussing “inten[t] to preempt the field for Federal regulations, thus eliminating the threat of conflicting or inconsistent State and local regulation of employee benefit plans” and stating that “[t]his principle is intended to apply in its broadest sense to all actions of State or local governments, or any instrumentality thereof, which have the force or effect of law”).

In the end, although it is nice that the Court established whether or not Vermont’s reporting requirements were preempted, the more lasting and broader value is that a broadly respected bench has reemphasized the principle that plans cannot be subject to conflicting state regulation with regard to their primary operations. Application of this principle, on a practical level, is central to the efficient and effective operation of benefit plans, since so many operate across state lines, placing them at risk of conflicting legal duties and expensive compliance obligations if they must comply with each state’s unique approach to a particular issue regarding benefit plans.