Breach of Fiduciary Duty, Preemption and Liberal Pleading Rules
I obtained dismissal of a breach of fiduciary duty claim, as well as state law claims, against my clients in an opinion filed on Friday. While long time readers know that I won’t comment substantively on rulings involving my clients, the opinion is worth a read on at least two substantive points involving breach of fiduciary duty claims. The first is the requirement of discretion on the part of a defendant for the defendant to become a fiduciary by means of administrative actions relating to an ERISA-governed plan; the second is the question of whether state law claims relating to an ERISA-governed plan are preempted when brought against a party that is not a fiduciary.
Separately, though, because this part of the opinion does not concern my clients, I can comment on a part of the opinion that will be very interesting to anyone who, like me, is a federal procedure geek. The Court engages in a sustained analysis of Federal Rule of Civil Procedure 15(a) and the right to amend as a matter of course, and how it applies in a circumstance where the original complaint, which the plaintiff seeks to amend, was in fact never served. The Court found the right to amend to still exist, regardless of the failure to serve the original complaint. The Court found that the modern rules reject hyper-technicalities when it comes to pleading, and that the rules therefore cannot bar an amended complaint simply because the original complaint was not first served. Interestingly, though, the Court recognized what is in essence a good faith requirement for a plaintiff to be allowed to avoid a bar that might otherwise be created by a perfectly literal reading of the federal rules, noting that its conclusion might be different if it were shown that the plaintiff were taking advantage of the liberality of the pleading rules for purposes of gaming, undermining or otherwise seeking to thwart the inherent purposes of the rules. Fun stuff, I think anyway.
Did the First Circuit Just Change its Test for Preemption?
Or did it just use a clever turn of phrase? More likely the latter, I think, but even if that is the case, it is absolutely a turn of phrase that is useful and important to know for anyone litigating an ERISA preemption issue in the First Circuit.
Historically, courts in the First Circuit have focused on two concepts in deciding whether a state law claim is preempted: (1) whether the state law cause of action seeks to supplement the causes of action available under ERISA itself; and (2) whether the state law claim requires consideration of the ERISA plan to decide the claim or would dictate specific terms or operational procedures for the plan. Two weeks ago, the First Circuit, in the case of Merit Construction Alliance v. City of Quincy, discussed the second concept by, in essence, applying a sliding scale analysis that considered how much impact the state law in question actually had on the ERISA governed plan, finding that too much equals preempted, while too little equals not preempted.
In addressing whether a city ordinance requiring bidders to establish an apprenticeship program was preempted, the First Circuit explained:
ERISA “supersede[s] any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” 29 U.S.C. § 1144(a). The Supreme Court has distilled the statute's “relate to” language into two independently sufficient alternatives: “a connection with or reference to” an ERISA plan will result in preemption. Shaw, 463 U.S. at 97. . . The battle here, as waged by the parties, focuses on the “connection with” component of the two-sided ERISA preemption calculus. . . .[N]ot every conceivable connection will support preemption. For example, state laws that merely exert an “indirect economic influence” on a plan do “not bind plan administrators to any particular choice” and, thus, do not come within ERISA's preemptive reach. Cal. Div. of Labor Standards Enforcement v. Dillingham Constr., Inc., 519 U.S. 316, 329, 117 S.Ct. 832, 136 L.Ed.2d 791 (1997) (internal quotation marks omitted). On the other hand, “state statutes that ‘mandate[ ] employee benefit structures or their administration’ ... amount[ ] to ‘connection[s] with’ ERISA plans” and are therefore preempted. Id. at 328 (final alteration in original) (quoting Travelers, 514 U.S. at 658). The path from influence to coercion amounts to a continuum and it is not always a simple task to determine where along this continuum a particular state law falls.
The Court then proceeded to analyze where on that continuum the city ordinance fell, for purposes of determining whether or not it was preempted.
I don’t believe this discussion of the continuum was intended to create a new test for preemption or to establish a new standard for analyzing the issue. There has always been an element, in First Circuit preemption analysis, of considering how closely a state law acts upon the operation or terms of an ERISA governed plan, and this discussion of the continuum seems to fit easily within that tradition. Nonetheless, looking at the question of whether a particular claim is preempted by analyzing where it falls on such a continuum is a handy and potentially persuasive manner of addressing the question. Anyone advocating for or against preemption in the First Circuit would be well-served by structuring the argument around where on that continuum the claim in question falls. It is an easy framework for the audience to grasp, while sufficiently malleable to allow a party to argue for a favorable placement on that continuum.
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.
Sprint(ing) Right to Federal Court to Protect Plans Against Preempted State Action
You know I think all things are about ERISA, and ERISA is about everything, don’t you? And of course, my view on this is even somewhat logical, and not just an outgrowth of my own personal interests. If you walk, talk, have health insurance, invest for retirement, have a pension or, even more so, work, you and your activities are governed, to a certain extent, day in and day out, by ERISA. That is, of course, an overstatement and oversimplification, but it drives home my point: ERISA regulated and governed activities that we interact with in day to day life are ubiquitous, even if most people are not aware of it.
I mention this because the Supreme Court issued a very interesting decision on Younger abstention Tuesday, in a case, Sprint Communications v. Jacobs, that concerned telecommunications and utility regulators, and had nothing to do with, and never mentioned, ERISA. And yet to me, if you think about it, the decision has a side to it that is very important to ERISA lawyers and particularly litigators, as well as to plan sponsors. In Sprint, the Court made clear that the reach of Younger abstention is very narrow, and it cannot be invoked to regularly deprive federal courts of their jurisdiction over issues governed by federal law, particularly where federal law preempts state action; further, the Court made clear that Younger abstention cannot prevent parties from seeking federal court protection of their federal rights in most cases involving civil remedies, and in particular in cases where state regulators take action that should be preempted by federal law.
I doubt that any statute has broader preemptive effects than ERISA, but at the same time, as noted above, ERISA touches a vast number of the day to day activities and financial interests of private citizens, even without many of them knowing it. This combination means that many state regulatory bodies can, accidentally or on purpose, act in ways that infringe on plan sponsors’ express rights under ERISA to be free of state regulation with regard to their employee benefit plans. Prior to the Supreme Court’s ruling two days ago in Sprint, there may have been some doubt, in at least some jurisdictions, over whether a federal court could act to protect that right while state regulators were proceeding with regard to an ERISA governed benefit plan. Sprint makes clear that the federal courts can intervene to protect the rights of plan sponsors to be free of state regulation, right from the get go, by enforcing ERISA preemption in the face of state regulatory action.
Cancelling a SERP and the Limits of Preemption
One of the more singularly interesting problems in ERISA litigation for anyone who, like me, greatly enjoys the complexities of civil procedure is the interplay of preemption (which, as we all know, is very broad under ERISA) and removal from state court to federal court. We all know that many plan participants would prefer to litigate disputes with plans under state laws rather than under ERISA, as such state causes of action may provide broader recoveries, easier burdens of proof, and the right to a jury; further, those same participants would, for various tactical reasons, prefer, if at all possible, to press their claims in state courts and not in federal courts. ERISA, and the body of jurisprudence that has built up around it, seeks to thwart these preferences by, first, broadly preempting state law claims that impact the duties imposed by or that exist under a plan, and, second, by allowing for removal to federal court of even purely state law claims if, in fact, they are really just ERISA claims in state law clothing; preemption is allowed under those circumstances by means of the doctrine of complete preemption.
But as participants and their lawyers often argue, there must be some limit on the scope of preemption and on the ability of defendants to remove purely state law claims and litigate them in federal court as ERISA claims (or else have them dismissed outright if the participant does not proceed with an alternative ERISA based cause of action). In many circuits, and under a fair reading of much of the case law on the issue, that limit may exist, but it resides far out there; few state law claims based on harms arising under or related to an ERISA plan will be deemed by courts to be so tangential to the plan as to avoid preemption and, where necessary, removal to federal court on the basis of the preempted status of the state law claim. However, the Sixth Circuit recently found that certain claims related to SERPs could fall outside those boundaries, and thus be neither preempted nor subject to removal to federal court. The Court found that the dispute over the SERPs concerned a decision to cancel them so as to smooth the sailing for a particular corporate acquisition, and the Court found that under those circumstances, the executives who were participants in the SERPs could prosecute a state law claim in state court, on the thesis that it does not affect the terms of the SERPs or the duties imposed by it. The Court found that the state law claims did not require interpreting the SERPs or applying duties owed under them, but only required reference to the SERPs for the specific purpose of determining the damages due the executives if the SERPs were, as alleged, canceled in violation of state law. The Sixth Circuit found that this reference to the SERPs to calculate the damages on the state law claim was not sufficient to invoke preemption to an extent needed to allow removal to the federal court on the basis of complete preemption. The decision is Gardner v. Heartland Industrial Partners, which is discussed in some detail in this recent article from Plansponsor.
Preemption of Misrepresentation Claims
Longtime readers of this blog know that I don’t comment on my own on-going cases, but that I will pass along interesting decisions from my cases, without much comment or analysis, when I think they provide some value to readers. In that vein, attached is a recent 22 page opinion in favor of one of my clients dismissing seven of eight claims in an ERISA case. I think it provides a very comprehensive examination of the current law of preemption in the First Circuit, including concerning state law claims of misrepresentation, which is a very hot topic right now.
Notes on The John Marshall Law Review's Special Edition on "The Past, Present, and Future of Supreme Court Jurisprudence on ERISA"
Here’s a neat special edition of the John Marshall Law Review, covering Supreme Court Jurisprudence in advance of an employee benefits symposium at the law school. Several of the articles in particular jump out at me as a practitioner as being right on point with key issues playing out in the courtroom; I think it is notable in this regard, and possibly causally related, that several of the authors are practicing lawyers who focus on ERISA litigation.
One article addresses fiduciary obligations with regards to holding employer stock in a plan, or what the rest of us commonly refer to, by shorthand, as the Moench presumption. As I discussed in this post, the courts are in the process of working out the application of these obligations and the presumption under the real time circumstances of actual cases. Another focuses on the development and application of equitable remedies after Amara, and one other speaks to the role of SPDs after Amara. The two are linked, in that the communications contained in SPDs are central to the prosecution of the types of equitable relief claims opened up by Amara. And finally, one other article addresses the restricted scope of remedies available to plan participants as a result of the Supreme Court’s historically narrow reading of ERISA remedies in conjunction with its historically broad reading of ERISA preemption. Interestingly, and as I have written elsewhere, the expansion of equitable remedies by means of surcharge and other types of relief recognized by the Court in Amara is likely to serve as a curative to that problem, by creating an avenue to use the equitable relief prong of ERISA to provide relief to participants in circumstances in which, previously, the combination of ERISA’s limited list of remedies with its broad preemptive effect would have precluded relief being granted to the participant.
Tails I Still Win, Heads You Still Lose: More on the Fiduciary Status Under ERISA of Traditional Banks
Looks like everybody knows a good story when they see it. Here’s a nice CCH piece on the same Sixth Circuit decision I discussed in my last post, concerning the fiduciary status of a depository institution under ERISA.
Interestingly, the whole deconstructionist/critical legal studies movement (I know I am dating myself by at least decades here by this reference; what’s next for me, a link to an article about Bruce Springsteen, or the 1980 Olympics?) had at its heart the idea that if you trace back a thought to its earliest formulation you can learn a lot about how the current conception came to be, and whether the current conception should be accepted at face value. I bring this up because I have done enough work on the fiduciary status of commercial banks to know the judicial history of the assumption – and of the case law to the effect – that they should not normally qualify as fiduciaries for purposes of ERISA. If you trace the history back far enough, you find that what is, in essence, a prevailing presumption against finding such entities to be functional fiduciaries isn’t all that well-founded.
Heads I Win, Tails You Lose: The Privileged Position of Traditional Banks in ERISA Litigation
All right now, its time to get back up on the horse – the blogging horse, that is. I didn’t actually go on vacation for the last month, believe it or not – I had a major brief concerning a piercing the corporate veil case against a corporate officer due not long after the July 4th holiday, followed almost immediately by briefing concerning the First Amendment rights of internet posters. Fun stuff, but it hasn’t left much, if any, time for blogging.
So I am now going to try to catch up on a number of items that I spotted – but was never able to find the time to post on – over the past month. I am going to start today with this story right here, about the Sixth Circuit ruling that ERISA claims against a bank failed on the ground that the bank did not qualify as a fiduciary, while the state law claims against the bank could not go forward because they were preempted.
Speaking last month at an MCLE seminar on the subject of litigating top-hat and other compensation disputes, I discussed one of my favorite conceptual points, which is the theoretical possibility in certain cases of prevailing, as a defendant, by showing that the ERISA claims fail on technical grounds while state law claims are preempted at the same time because the underlying fact pattern – whether or not capable of supporting successful claims under ERISA– turn on the terms of an ERISA governed plan. The end result is that a plaintiff would not be able to recover at all – or even have any viable causes of action – against the defendant. I discussed it, in fact, right here in this PowerPoint slide in my presentation, which referenced a case, Aubuchon v. Benefirst, in which I pursued that defense strategy. As my fellow panelists at the seminar and I discussed, it is a conceptually elegant and perfectly logical argument, but one that courts generally don’t like, finding that, much as the dissent did in the Sixth Circuit case referenced in the article, the circumstances either cannot or should not be interpreted in a manner that would leave the plaintiff with no viable cause of action under ERISA itself while simultaneously eliminating any state law rights by operation of preemption.
Here, though, the Sixth Circuit accepted that argument and found the plaintiff to have no viable claims, for this reason, against a defendant. It is interesting to note, though, that the defendant who benefited from that here is a bank. For whatever reason, banks – traditional, old-fashioned depository/lending institution type banks – make out very well in ERISA litigation when a party tries to bring them in, as happened in this case, as a functional or deemed fiduciary, based on the bank’s role in handling and distributing a plan asset; there is a long history of cases, although perhaps relatively few in number, placing such an institution outside of the role of fiduciary for purposes of ERISA litigation, when the bank is serving in a traditional banking role as a depository or lending institution. Add in the impact of preemption, and a bank that is merely holding the plan assets or lending against them (or supposedly only doing that, as the facts alleged in the case before the Sixth Circuit, as is often true in similar cases, could be construed as involving much more than that on the part of the bank in question) is in a very privileged position when it comes to defending litigation over its involvement with an ERISA governed plan.
The decision is McLemore v. EFS, and you can find it here.
ERISA Preemption and the Legal Services Plan
I have a bias against writing short posts that just, in essence, pass along someone else’s work, without additional analysis, commentary or spin, which is good in many ways but does mean that it is tough to post when I am particularly busy at my day job. Nonetheless, I did want to pass along this short piece from the Legal Malpractice Law Review - which, despite its title, is a blog - on whether a legal malpractice action against an attorney who was providing legal services to a plan participant under a legal services plan can be preempted by ERISA. The answer, according to the case covered in the post, is that it can be, if one is not very careful in pleading the claim and constructing the theory. Its interesting to me because, infrequently but often enough to stick in my head, I hear from a participant in a company or union provided legal services plan who received the promised benefit of legal representation for a covered legal event, but with an outcome that screamed malpractice, and they want to know what claims they can bring against the lawyer or, just as often, the plan.
ERISA Preemption: Depends on What You Mean by the Word Relate
I really, really like this opinion, to paraphrase Sally Field’s perhaps most famous line (or perhaps not, since she never actually said it.) I like it because it deals really well, and out of a highly respected court, with a question that often bedevils not just courts, but also lawyers trying to determine the scope of preemption, which is how close does a state law claim have to come to impacting an ERISA governed benefit plan for it to be preempted on the thesis that the state law claim “relates” to the benefit plan. The trend in the case law is to recognize that the word relate is overbroad in this context, and to note that, in light of current Supreme Court jurisprudence, state law claims do not become preempted simply because they relate, in the common English language sense, in some general manner to an ERISA governed benefit plan. Rather, they only relate for these purposes, and are preempted, if the state law claim “interferes with the relationships among core ERISA entities [or] tends to control or supersede their functions,” thereby threatening to undermine “the uniformity of the administration of benefits that is ERISA's key concern.” When, in contrast, the state law claims, if recovered upon, would not be paid by the plan itself and do not seek to impose peculiar, state by state, obligations on the plan’s administrators and fiduciaries, the state law claims do not relate to the ERISA governed plan for purposes of preemption analysis, and there is no preemption.
I suspect that one of the reasons this issue - of the scope of ERISA preemption - is difficult to handle at times is that there is a language barrier of sorts; as this case shows, relate has a specific meaning in the context of ERISA and ERISA preemption, and an entirely different and broader one when used as part of regular speech, including by lawyers. As a result, analyzing the scope of preemption under ERISA can become one of those areas of the law in which ERISA lawyers and other lawyers become “two peoples separated by a common language,” in the famous formulation.
The case, incidentally, is Stevenson v. Bank of New York, decided this week by the Second Circuit. You can find a copy of it here.
Does the Bell Toll for Discretionary Clauses?
I have been wondering about the question of whether state insurance commissioners can effectively gut the industry practice of including discretionary clauses in disability policies by refusing to approve forms for use that include them, or whether ERISA preemption precludes that action. I was preoccupied with a trial at the end of October when the Ninth Circuit concluded that they could do exactly that, without running afoul of preemption, according to this post by Mitchell Rubinstein at the Adjunct Law Prof blog. I have to wonder, though, whether it is something of a pyrrhic victory, since my view, without ever having seen actuarial data one way or the other, is that discretionary clauses reduce litigation costs and thus likely reduce the price of group long term disability policies. If insurance commissioners effectively gut the industry of that option, it would seem to me it could only drive up claim costs and, naturally then, policy pricing. Will that reduce employer willingness to provide this important benefit? Time will tell, but we already know that rising costs are the primary reason that employers don’t provide as much health insurance as they used to. We should keep this in mind when legal and regulatory decisions occur that can only drive up the cost of other employer provided, and ERISA governed, benefits.
Preemption, the Supreme Court, and Job Losses
I had two disparate items that I wanted to post on, one of which I didn’t really think had anything to do with the subject matters of this blog but that, nonetheless, was too cool a graphic not to pass on. Sitting here this morning, though, I figured out how to hook them together, so here goes. The first is the report, which many of you have heard by now, that the Supreme Court has sought the government’s views on whether to accept cert with regard to the Ninth Circuit’s ruling on preemption and the San Francisco health insurance mandate. I can throw out two, or actually three, quick thoughts on that one. First, dollars to donuts says the government’s advice is to not grant cert, and to wait and see whether federal health care reform either directly or in a de facto manner moots the entire question. Second, the reality is that, under current doctrines, that statute is preempted; the Supreme Court doesn’t necessarily have to overturn any precedents to find otherwise, but it is going to have to shift the analyses of the preemption case law to find that this statute is not preempted. Third, I can’t say - as one who has watched the questionable implementation in Massachusetts of its state legislated, and presumptively preempted, employer mandate - that I agree with those who think that preemption should be set aside to allow states to become bastions of experimentation on health insurance reform; anyone who has followed my posts on the Massachusetts statute knows I don’t think the states have the pocketbook or the firepower to handle the issue successfully.
What was the second item, the one that wasn’t clearly on point to this blog? Its this graphic representation of job losses and gains throughout the business cycle for different metropolitan locations across the country, a link I have shamelessly pirated this morning from the Workplace Prof blog. My first response to it was that I loved the graphical representation of complex data; it’s the same thing a trial lawyer has to do in a case of any level of complication, which is make the background information understandable, and this graphic does that beautifully. Trial graphics in particular have to serve this purpose, and this graphic could be the exemplar of exactly what computer generated graphics for trial should be: easily understandable and visually interesting representations of what otherwise would be difficult to grasp or, at best, tedious to follow information. But how do I link this graphic to this blog post? Easy, by using it like a trial graphic to make a point. If you move the time line to 2009 on the graphic, you will see the massive amounts of job losses - there is no better illustration of the point I have made time and again about employer mandates, which is that employers have enough on their plates without being made the official provider of health insurance (they have long been the unofficial one, but employer mandates push that responsibility even further). Employers should create jobs, not spend their time worrying about the costs and administrative burdens of legislated mandates such as the San Francisco ordinance or the Massachusetts Health Care Reform Act - this, in fact, may be the most concise justification for preemption of such acts I can think of.
If the Plan Fits, You Must Acquit (Or at Least Preempt)
Here’s an interesting case for you. Here in the First Circuit, we have plenty of case law making clear that theories of liability that serve as alternative enforcement mechanisms to those set forth in ERISA itself are preempted. What about the circumstance where the cause of action is not necessarily an alternative enforcement method but would nonetheless require the fact finder to reference the terms of an ERISA governed employee benefit plan to determine whether or not the plaintiff’s state law cause of action is viable? Is there a point at which the state law claim becomes too remote from the existence of the ERISA governed employee benefit plan for it to be preempted? Well sure, but it is only at a great remove from the employee benefit plan itself. The standard for determining this is a simple test - does determining the cause of action require considering or interpreting the terms of the plan? If so, the state law cause of action is preempted.
This principle is nicely illustrated by a new decision, out of the United States District Court for the District of New Hampshire, in which the plaintiff sought to recover emotional distress for tortious mishandling of her claim for benefits, by arguing that “resolution of her emotional distress claim would not require an analysis of ERISA plan documents” and therefore the state law claim could proceed. The District Court rejected the argument because, as a factual matter, deciding the plaintiff’s claim would require the court “to determine, among other things, any deadlines or other time frames set out in the plan documents. It would also be necessary, it would seem, to know the scope of the plan's coverage, in order to determine whether [plaintiff’s] claims were mainstream or borderline or meritless, which, presumably, would have a bearing on the time reasonably necessary for [the defendant] to approve or reject them.” The case, Polley v. Harvard Pilgrim Health Care, does a nice job of illuminating this aspect of preemption analysis - namely, the implications for preemption of any need under a state law cause of action to interpret the terms of an ERISA governed plan. I pass it along as useful reading on that point, and a handy, dandy case to cite to quickly for the principle.
On Preemption of Pay or Play Acts and the Supreme Court
File this, I suppose, in the department of inevitable events - lawyers representing the restaurant industry have filed to have the Supreme Court review the Ninth Circuit ruling finding that the San Francisco pay or play ordinance is not preempted by ERISA. This is one of those instances where you can bet how the case will come out the same day the Court announces whether it will hear the case; if it does, the statute is going to be found preempted and the Ninth Circuit overruled, for reasons I referenced in passing here.
I do have a reason for posting on this, beyond wanting to get on board early with a prediction for the outcome (even Paul Secunda, back in his days as the Workplace Prof, would never have called a case before it was even accepted for hearing!), and that is this quote from the restaurant group’s lawyer, courtesy of the National Law Journal:
"One of the most important issues that we are debating in the country today is how health care is to be provided," said Jeff Tanenbaum, chairman of the labor and employment group in the San Francisco office of Nixon Peabody, who represents the Golden Gate Restaurant Association, which filed the petition on June 5. Golden Gate Restaurant Association v. City and County of San Francisco, No. 08-1515.
"This case comes down at a time when that debate is the focus of tremendous attention at the federal level. It is an issue that needs to be addressed at the federal level," he said.
I have said it time and time again on this blog, that ERISA preemption serves the admirable, even if perhaps inadvertent, role of forcing health care to be tackled at the only level it can be adequately addressed, the federal one, and not at the level of state governments, which simply don’t have the resources to pull it off, as this article here reminds us yet again (and this one too). I am happy to hear someone else say it as well.
The Massachusetts Health Care Reform Act: Demonstrating that ERISA Preemption is Health Care Reform's Best Friend
Well, I have argued more than once on these electronic pages that ERISA preemption, rather than being the whipping boy of choice for people who advocate state level health insurance mandates, should be understood as a key element in bringing about any type of effective change to the health insurance system. Why is that? Because ERISA preemption forbids the states from enacting health insurance reform statues since states cannot enact them without either deliberately or unavoidably rejiggering employer provided - and thus ERISA governed - health plans, meaning that any real change from the current employer provided (and voluntary) health insurance system can only take place on a national level. And why is this in turn good? Because states are kidding themselves if they think that they can, financially, pull off reform of the system on their own, as this article here demonstrates yet again. Although buried behind the praise for the fact that the state reform has increased access by decreasing the numbers of uninsured, the article notes that affordability problems have arisen, which cannot “be blamed on the state's overhaul, but on a much larger and troubling national trend [which is that] [h]ealthcare costs, in general, are increasing faster than inflation.” The city of San Francisco, or the Commonwealth of Massachusetts, cannot solve that problem, and they can’t fund it on their own, either. It’s a national problem, and one that ERISA preemption demands be handled nationally.
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.
Wrongs That Can't Be Remedied: ERISA Preemption and Limited Statutory Remedies
Paul Secunda, the law professor formerly known as the workplace prof, has a new law review article out on the “wrong without a remedy” aspect of ERISA litigation, which is the fact that the broad scope of preemption can combine with the limited range of remedies available under ERISA in a way that makes some alleged wrongs involving employee benefit plans simply not redressable. Notice that unlike many commentators, including Paul in his article, I call it an aspect of ERISA litigation, rather than a problem, as, contrary to Paul’s article, I am not convinced this isn’t the logical outcome, rather than the problematic distortion, of the original statutory structure. Either way, there is certainly room to argue over whether, and if so what, should be done about this aspect, and Paul provides his own version of changes that could be enacted legislatively or by judicial development to eliminate the “wrong without a remedy” scenario. I don’t necessarily agree with all of his points or his reasoning, but its an interesting read and presents some interesting approaches. Moreover, I am on record - I guess as part of a Greek chorus at this point - with my criticism of legal scholarship that is simply part of a hermetically sealed circle of philosophical commentary, without adding value to practicing attorneys, courts, or the legal system as a whole. Paul’s article avoids this problem, I am happy to report, in two ways, making it something worth recommending as reading to practitioners. The first is that the article provides a highly readable, educational (and cite-able) survey of the historical and current state of the law of preemption. The second is that the article thoughtfully shifts the nature of the discussion of this problem from the general fixation on the preemption prong, which is usually the focus of the discussion in commentary and in litigation, to the remedies part of the problem, posing the idea that preemption is broad enough to preclude adding state law causes of action to benefit plan cases, and that instead the place to look to end the “wrong without a remedy” conundrum, which Paul has called in other places the “grand irony of ERISA,” is to the statutory remedies under ERISA and to whether they can be expanded by judicial development or legislative fiat. In the courtroom, in cases involving the clash between preemption of state court remedies and the limited nature of the relief available under ERISA, the focus tends to be on the scope of preemption; Paul, in his article, posits that it would make more sense to simply start the analysis, and any response to this issue, from the premise of accepting the broad scope of preemption, and then go from there.
The article is titled “Sorry, No Remedy: Intersectionality and the Grand Irony of ERISA,” and can be downloaded here.
Some Notes on Fair Share Acts and the Economics of Health Insurance
I have argued many times on these - virtual - pages that fair share acts, and their backers’ obsession with trying to circumvent ERISA preemption, puts the cart before the horse, in that they focus on putting more health insurance obligations on employers without addressing the real reasons that employers struggle to provide health insurance, which is its ever expanding cost. Stories like this one here make me think that I have understated the case, and that demanding more insurance out of employers, without tackling the cost problem first, isn’t just putting the cart before the horse, but is actually just plain wrong headed, and bordering on the willfully obtuse (not to put too fine a point on it). It is all well and good to insist that everyone should have health insurance and access to health care, but simply blindly assuming that employers can pay for it is a mistaken premise that sits at the base of all fair share acts. It is cost that is driving the access and uninsured problem, an issue that is not addressed to any real degree by fair share acts, including the one in Massachusetts and the San Francisco version that has so far managed to survive preemption challenges.
Talkin' ERISA Litigation Trends
I will be presenting a seminar next week, on Wednesday January 14th, to the ASPPA Benefits Council of New England, entitled “ERISA Litigation: An Update from the Front Lines.” After three full days of outlining my talk, I now actually have a pretty good idea of what I am going to say; the talk will blend the latest developments nationally and at the Supreme Court in ERISA law with ERISA litigation trends and realities in the First Circuit. If you are interested in attending, its not too late to register. The brochure and registration form for the talk is here.
Wooten and ERISA Preemption: When History and Current Desires Collide
A little judicial activism anyone? I am not sure what else, when you look at the actual history of how ERISA preemption came into being, you can call the demands that come from many quarters for courts to reduce the scope of preemption in the ERISA context, or, for that matter, the Ninth Circuit’s decision upholding the San Francisco health insurance mandate. James Wooten, of the University at Buffalo Law School, documents the political history of the enactment of ERISA and its broad preemption provision in this article here, emphasizing that the history of federal regulation and statutory enaction in this field progressed from one - based in legislation from the 1950s - that ceded much authority to the states to one - encapsulated in ERISA - that removed the states entirely from the field. Professor Wooten explains that the eventual progression reached the point where: “Over the course of the Ninety-Third Congress, which passed ERISA, lawmakers further expanded the preemption language so that employee benefit plans became ‘an area of exclusive federal concern.’ ERISA § 514(a) preempts state regulation of benefit plans even with respect to matters federal law does not address.” It is simply hard to understand how decisions such as the Ninth Circuit ruling that - contrary to all other courts presented with the same issues - found that a local ordinance mandating a certain structure with regard to employee benefit plans is not preempted can square with the well-documented legislative history of a deliberate intent to preempt the states even, as the professor phrases it, “with respect to matters federal law does not [even] address.” Quite simply, rulings and arguments by commentators that ERISA preemption should be read more narrowly than has been the case, and concomitant decisions like the Ninth Circuit ruling on the San Francisco act, may be understandable as an argument for or exercise in some sort of normative cum Dworkian cum Judge Hercules decision making, where the courts are to bring an aging statute into compliance with current circumstances, but they certainly cannot be justified as an accurate interpretation of congressional intent itself.
A Random Walk Through the Ninth Circuit's Preemption Ruling
Disparate thoughts. Connect the dots. Or maybe more unintended consequences. Take your pick. While many advocates of health care reform cheer the Ninth Circuit’s conclusion that ERISA does not preempt all state pay or play laws, I am a little dubious as to whether this represents anything more than a Pyrrhic victory for anyone actually interested in ensuring that everyone is insured. Report after report, many of them credible, tell us that employers, who provide most of the country’s health insurance, are aghast at the idea of losing ERISA preemption, and would consider it one more reason not to continue to provide health insurance to employees and to instead pull back from that role. I am hardly inclined to think that, should employers relinquish that role, state or federal governments are prepared fiscally or intellectually to step into the breach and effectively fill that hole well. I thought this before, in the past, and wrote about it in a number of postings (such as here), when we saw the financial costs of Massachusetts’ reform plan balloon, supposedly unexpectedly; I thought it again when we saw the effectiveness of federal government regulation of Wall Street; and I thought it for sure when I read Paul Krugman this morning.
Perhaps this obsession among health reform advocates with defeating ERISA preemption is a case of putting the cart before the horse; maybe we should first have effective non-employer health insurance structures in place, before we go trying to dismantle the preemption structures on which employers rely in choosing to provide health insurance to their employees.
Pay or Play Acts, the Ninth Circuit, and the Never Ending Law of Unintended Consequences
Well, my trial this week is over, and I return to the blog with a - cue self-congratulatory, self-promoting note here - win in my back pocket. Last time I tried a case, I complained, tongue firmly in cheek, about the courts insisting on issuing major ERISA decisions while I was not available to discuss them, and they did it again this time around as well, with court decisions and legal developments in this area of the law pouring into my in-box all week. Its exactly as one of my favorite philosophers once wrote: “the wheel is turning and you can't slow down, you can't let go and you can't hold on, you can't go back and you can't stand still.”
Among the most prominent decisions issued while I was in court was, obviously, the Ninth Circuit’s ruling finding that San Francisco’s pay or play law was not preempted by ERISA. Can’t say I buy that one. Whatever is the scope of preemption in the field of ERISA, it logically reaches state efforts that result in a multi-jurisdictional company having to comply, with regards to its employee benefit plans, with a differing web of regulation that varies from one state to the next.
Of more interest, perhaps, is the wide ranging group of consequences, some predictable and others unintended, that the Ninth Circuit ruling likely unleashes. The first that jumps out at me is predictable, and the same that immediately occurred to every other commentator: that with the direct conflict it creates between the Fourth and Ninth Circuits on this issue, in combination with the political impetus in numerous states and localities to legislate on this issue, Supreme Court review seems certain. What is less predictable, or at least less widely predicted at this point, is what I fear may be the unintended consequences of that occurring; much as the LaRue decision did little, if anything, to clarify the law in the area of 401(k) losses going forward, but instead opened up a Pandora’s box of not yet addressed and still to be resolved legal issues (as commented on here, for instance), I suspect a ruling in this area by the Court will have the same effect on the question of the legal validity of state action in this area. I am disinclined, given the number of differing approaches to ERISA law and interpretation applied by the differing opinions in LaRue, to think that Supreme Court review of this issue will result in one coherent, uniform theory that can easily be interpreted and applied prospectively to these types of statutes, and suspect that such a ruling is instead more likely to open up a range of issues that will have to be litigated if and when such statutes are challenged as preempted. I could be wrong, but recent history in this area of the law suggests I am not; we may know more after the Supreme Court rules on the ERISA cases currently on its docket, as to how uniform an approach in this field of law and how much helpful guidance will come down from the Court. Bear in mind on this question though, that the Court’s decision in LaRue alone already has courts and litigants thinking that every issue (“every” may be a little bit of an overstatement, but you get the point) that was previously thought resolved is up for grabs in cases filed involving 401(k) plans, if those issues were originally resolved only in cases involving defined benefit plans.
Is ERISA Preemption Coming to the Massachusetts Health Care Reform Act?
You know that theme music from the movie Jaws? Cue it up - the sharks are circling the Massachusetts Health Care Reform Act. Hard on the heels of the recent reports that the state is going to have to increase the financial obligations of employers to maintain the near universal coverage called for by the act comes this story noting the same thing I said yesterday, that increasing the obligations the act imposes on employers will likely provoke a preemption challenge. The story quotes a D.C. lawyer, Kevin Wrege, who says that several law firms there are getting ready to file suit over this and that "[a]ll they are lacking is a paying client and a green light." (I think that quote is what started the Jaws theme playing in the juke box of my mind.)
More substantively, here is an interesting survey piece from the Congressional Research Service (really, one of the jewels of the federal government, a source of generally thoughtful non-partisan analysis, in my experience) on ERISA preemption and its application to “pay or play statutes.” In particular, the piece focuses on the Massachusetts statute, and on the question of whether the First Circuit will find it preempted if it is challenged. In essence, and not too surprisingly, the author finds that the statute will likely be found preempted if the First Circuit follows the reasoning of the Fourth Circuit in Fielder (concerning the Wal-Mart Act in Maryland), but not if the First Circuit follows the reasoning to date of the Ninth Circuit in the on-going litigation over the San Francisco ordinance.
The piece also provides an interesting and detailed explanation of the provisions of the Massachusetts statute, and how it operates. The article parrots something I have said often on this blog, which is that it is likely that the low burdens at this point placed on employers by these provisions of the act is the likely reason no one has challenged it to date as preempted. When you read the piece, you will see pretty clearly both how low those burdens are at this point (it is hard, for instance, to imagine any major employer not already being in compliance just as a matter of course with the “play” requirements of the statute as they are described in the article, thus precluding the statute from significantly affecting them or their bottom lines) but also the avenues for those burdens to be increased.
Thanks is due to BenefitsLink, by the way, for passing the report along.
Massachusetts' Pay or Play Act: The Triumph of Hope Over Experience?
I have said it before and I will say it again: the day they fess up to the real costs of insuring the uninsured in Massachusetts and admit they need to pass that cost onto employers is the day before someone files a lawsuit asserting that the Massachusetts Health Care Reform Act is preempted. Take a look at this, and this.
Understanding ERISA Preemption as a Legitimate Congressional Policy Determination
Permalink | Many, many people object to ERISA preemption, viewing it as some sort of nasty trick that defendants use to avoid liability in ERISA related cases. Do a quick search for ERISA and preemption on Google Blog and you will find that out pretty quick. But to me, they misunderstand preemption, which was a legitimate policy choice by the Congress that passed ERISA to maintain one consistent federal policy and body of law for purposes of employee benefits. It is worth noting that, some thirty years, countless judicial decisions enforcing preemption, and even more countless numbers of critics later, Congress still has never acted to change that - to, in effect, preempt preemption. Stories like this one here, about the funding problems with Massachusetts’ much lauded - and legally questionable under preemption standards - pay or play law validate Congress’ decision in this regard, as it demonstrates the sheer impossibility of executing effective major change in any significant area of employee benefit law - in this instance with regard to health insurance and health care - on a state by state level. As the article discusses, Massachusetts finds itself unable to fund the universal health care initiative it passed, to much self-congratulation, recently, and is now forced to change the financing structure that it originally relied upon and which was the basis for the law’s enaction and lack of preemption challenge; as I have discussed in the past on this blog, the Massachusetts act, unlike pay or play statutes and ordinances in virtually every other instance, has not been challenged in court as preempted simply because the direct financial burden on the business community was, as enacted, minimal, but I have predicted before that: (1) the statute will inevitably result in an increase of the costs passed onto the business community; and (2) a preemption challenge will come not long after that occurs. As the article reflects, the first one of those events is knocking at the door right now; the second one won’t be long behind it.
From Preemption to ERISA Standing, and Lots of Things In-Between
Permalink | Philadelphia, New York, court hearings - I have been everywhere the past week or so other than at my desk where I could put up blog posts. Here’s a run down of interesting things I came across along the way that you may want to read. First, for those of you who can’t get enough of this topic - I know I can’t, but then I am fascinated enough by this stuff to maintain an entire blog on the subject of ERISA - Workplace Prof passed along this student note on preemption and “pay or play” statutes: Leslie A. Harrelson, Recent Fourth Circuit Decisions: Retail Industry Leaders Ass'n v. Fielder: ERISA Preemption Trumps the "Play or Pay" Law, 67 Maryland L. Rev. 885 (2008).
Second, SCOTUS passed along that the Supreme Court decided not to accept for hearing Amschwand v. Spherion Corp., which, I noted in a previous post, presented an opening for the Court to address when monetary awards for breaches of fiduciary duty can qualify as equitable relief that can be sought under ERISA. I have commented before that the Court has advanced the ball on equitable relief under ERISA into almost untenable terrain, and I am not sure whether the Court can bring any greater clarity to the issue without backtracking from its recent jurisprudence on the subject; given the unlikeliness of the Court doing so already with regard to such relatively recent decisions, it is probably just as well that the Court did not take on the issues presented by that case.
Third, you could learn everything you need to know about the standards of review for benefit denials and the impact of the Supreme Court’s decision in MetLife v. Glenn by clicking on the “Standard of Review” topic over on the left hand side of this blog; or you could spend an hour listening to this webinar on the topic.
Fourth, Pension Risk Matters passes along this Sixth Circuit decision enforcing the Supreme Court’s approach to individual claimants in LaRue, finding that two participants could sue for breach of fiduciary duty. There are two particularly interesting side notes about this. First, it illustrates a particular point I - and others - made in a number of media outlets after the Supreme Court issued its opinion in LaRue, namely that, while it may not result in an avalanche of litigation that otherwise would not have been filed, the ruling is certainly going to lead to an increase in the filing of smaller cases on behalf of a few participants in circumstances that, in the past, would not have generated suits unless a class wide action could be brought. Second, the case presages what may be the dying off, by a thousand cuts, of the long held use of standing to cut off ERISA breach of fiduciary duty suits at the earliest stages of procedural wrangling, long before any litigation over the merits of a case, something which occurred at the federal district court level in the original LaRue case itself. Roy Harmon, over at his Health Plan Law blog, has a detailed analysis of this question, one I have been thinking about since LaRue was decided but which Roy has thankfully saved me from addressing in detail at this point.
Passing Along Some Reading on Excessive Fee Cases and Other Timely ERISA Topics
Permalink | What would this blog be if it was done as a newsletter instead? Well, probably something like this new ERISA newsletter out of Proskauer Rose, with its detailed but readable length discussions of current events in the field, such as the Supreme Court’s recent decision in LaRue and the Supreme Court’s consideration of whether to hear a case that will allow it to return again to the problem of defining the available scope of equitable relief under ERISA. For me personally, I particularly liked the discussion of the latest trends at the trial level in the federal court system with regard to lawsuits filed over allegedly excessive fees charged on mutual fund investment options, as it takes an approach that I like to pursue whenever possible in my own posts here on this blog: it discusses the early decisions on the issue at the motions stage in the trial courts, and looks ahead to what this may mean for the industry as a whole and service providers. Its worth a read, and if you enjoy this blog, you will almost certainly enjoy this newsletter as well.
The Hard Headed Business Case for ERISA Preemption of State Health Insurance Mandates
Permalink | Why does ERISA preemption matter in the health insurance context, and why do many people think it should preclude state health insurance mandates, such as the Wal-Mart law already deemed preempted in Maryland and the San Francisco ordinance that is currently the subject of litigation over the question? Leaving aside the legal reasons why the acts are preempted, it is because employers, who provide most of the health benefits in the country, rely upon the stability and predictability generated by ERISA and the preemption doctrine. That, in any event, I think is a fair reading of this article here.
Back From Trial, But the World Kept Spinning In the Interim
Permalink | My trial finally concluded late yesterday after two weeks, with the jury returning a verdict in favor of my client (pause here for self-congratulatory pat on the back). While I was able to get some posts up last week, during the first week of trial, events during trial this past week left me with no time to post. A lot went on during that week that would be of interest to readers of this blog, running from the almost certain ERISA litigation that will follow from the Bear Stearns collapse, to further Department of Labor attempts to mandate transparency, to the Commonwealth of Massachusetts’ continuing efforts to single handedly prove that state regulation of employer provided health insurance benefits should, in fact, be preempted. We’ll return to these themes, and other topics, next week, now that we have time to get the printing press rolling again here.
A First Step Towards Supreme Court Consideration of Whether Fair Share Acts are Preempted
Permalink | Well now, at some point, I am convinced, we are going to get the Supreme Court to weigh in on exactly when and when not states can regulate employers’ provision of health care to their employees in light of ERISA preemption. As we have discussed here on numerous occasions, the Fourth Circuit has staked out a strong position precluding states from meddling in that relationship, while a panel of the Ninth Circuit, ruling on an interlocutory matter concerning injunctive relief over the institution of a similar act by the City of San Francisco, has found that local governments have some substantial leeway in this regard despite the existence of ERISA preemption. I, and I think most other commentators, think the Fourth Circuit has the upper hand in this conflict, given the existing Supreme Court case law on preemption.
This introduction is a long way of getting to the point of noting that a collection of businesses aggrieved by the San Francisco act may be speeding up the timetable for the Supreme Court’s consideration of this issue, at least to some extent, as they have now asked the Supreme Court to set aside the Ninth Circuit panel’s conclusion that the city’s act was not preempted and can go forward at this time. The whole story on this event is here.
Money Talks, Even About the Massachusetts Health Care Reform Act
Permalink | A number of different things I want to talk about, including an interesting decision discussing the obligations of plan sponsors when it comes to selecting advisors and some interesting thoughts on QDROs. I will sprinkle those in later, but for now I thought I would pass along Steve Bailey of the Boston Globe’s column today on the issues raised by the Massachusetts Health Care Reform Act, which basically mirrors what I have said in prior posts, such as my last one, about the statute and issues with its implementation. A couple of interesting tidbits to point out though, from his column. First note his reference to the fact that the statute effectively left the business community off the hook (in truth, this is only true financially, and even then only partly so; they still bear some administrative headaches, and some currently modest financial exposures), which fits exactly with my explanation in the past as to why the statute has not faced a preemption challenge in court to date. Second note his reference to the idea that the political and legislative will to continue with the program is strong. All well and good, but the issue now is the plan’s escalating costs, which are going to have to be borne by taxpayers or else by the business community; one wonders about the commitment of those who will actually have to pay the bill for this program. Anyone going to ask them?
The Massachusetts Health Care Reform Act as Evidence of the Need for Preemption
Permalink | Stories like this make clear that advocates of state fair share plans who like to point to the Massachusetts Health Care Reform Act as a shining exemplar of what could be accomplished if only ERISA preemption would go away are barking up the wrong tree. Rather, the article, with its discussion of spiraling costs to the state and the state’s need for federal funding to remedy the resulting shortfalls demonstrates the opposite, namely that, as I have argued in other posts, there is real reason to doubt whether the problem of the uninsured is one that can be cured on a state by state basis. Indeed, the fact that the Commonwealth needs significant - but as yet unpromised - infusions of federal money to effectuate coverage of the uninsured suggests that this problem cannot be solved by states and instead can only be solved on a larger playing field, namely at the federal level with the type of resources that only the federal government can commit to the issue. And if the issue can only be solved on a national level, and not on a state by state level, then isn’t that an argument for preemption? I hate to be a cynic, and prefer the title of skeptic, but there are a lot of reasons that ERISA preemption both exists and is valuable, and it is not the bogeyman preventing health insurance in this country that many of its critics make it out to be. There are real, fundamental problems in trying to increase health insurance coverage in this country, ones that are not solved by these state acts, which, as I have discussed before, basically play at the margins without addressing the real problem - cost - that is handicapping both the ability of employers to continue to provide health insurance to their employees and the ability of Massachusetts to actually successfully pull off its health insurance experiment.
And Still Another View on Preemption and the Massachusetts Health Care Reform Act
Permalink | I’ve noted in the past that the problem with state health care reform acts mandating health insurance is that they don’t tackle the issue that is deterring employers from providing broader health insurance benefits, namely the ever increasing and rapidly escalating cost of health insurance. In response, Massachusetts lawyer David Harlow argues on his blog that incremental steps towards resolving this problem are moving forward on their own schedule, separate from state legislation mandating employer provided health benefits, and cost control will come in time. Personally, I am skeptical that governments can actually control these costs, or even significantly reduce their annual rate of increase, but I would be happy to be wrong.
Someone Else's Thoughts On Preemption and the Massachusetts Health Care Reform Act
Permalink | People with thin skins - or who can’t laugh at themselves - shouldn’t write blogs. I got a good chuckle out of this over my morning coffee this morning.
The Lessons of the Massachusetts Health Care Reform Act's $400 Million Shortfall
Permalink | There’s a lot to be said about the preemption issues raised by state health insurance mandates and the assumptions that underlie the beliefs of those who argue that ERISA preemption should not be allowed to prevent states from experimenting with acts intended to remedy the problem of the uninsured. Articles like this one here, however, suggest the naivety of some of those assumptions, such as the idea that states are likely to really manage the problem in a more effective way than employers, operating under ERISA preemption, have managed to do so to date. Moreover, the article, in its discussion of the huge and apparently unexpected, or at least unplanned for, increase in the cost of insuring the uninsured under the Massachusetts Health Care Reform Act, really drives home a point I have made in other posts, that the problem with these statutes is that they do nothing to address the real problem affecting employer provision of health benefits, namely the extraordinary cost of providing those benefits; as the article reflects, Massachusetts’ much lauded experiment doesn’t target that at all, but simply shifts the pockets that will have to fund those extraordinary and ever increasing costs. And finally, if you look closely at some of the numbers discussed in the article, you come to understand the answer I have given to people who have wanted to know why no one has yet challenged the Massachusetts act as preempted; as I have told people, it’s not because the act isn’t preempted, it is instead because the financial costs to employers have yet to warrant such a challenge. The article explains that the state is anticipating some 400 million dollars in additional costs to provide health insurance under the statute to the uninsured, costs to be assumed by the taxpayers rather than by businesses through any obligation under the mandate to provide insurance; in this way, the Massachusetts statute is much more a mechanism - Trojan horse, some might say - to transfer the costs of the uninsured onto the tax rolls, rather than, by employer mandates, onto the business community. I think it is a safe bet that, had the act been drafted to transfer more of the health insurance costs onto the business community rather than onto the state taxpayers, you would have quickly seen a preemption challenge mounted. And finally in this regard, note the article’s reference to the amount of money that employers have paid to date for not providing the health insurance required by the statute, which is the underwhelming amount of 5 million dollars. I suspect Wal-Mart spent not too much less in legal fees to get the Maryland Fair Share Act overturned, and those aren’t numbers, spread across an entire business community, that are likely to provoke any economically rational business person to want to fund litigation over the act. Start to see those numbers creep up substantially, however, and you can safely plan for a preemption challenge.
The Ninth Circuit on the San Francisco Health Insurance Mandate Ordinance
Permalink | Workplace Prof has the story here of a three judge panel out of the Ninth Circuit staying the district court ruling that the San Francisco ordinance mandating the provision of health insurance by employers was preempted, and provides a link to the ruling. I second the surprise he describes in his post over the conclusion that the ordinance could legally be found to not be preempted, but in light of the media coverage of the appeal over the last week or so that I have been seeing indicating that the particular three judge panel hearing the action for a stay appeared critical of the lower court ruling, the fact that the stay itself was imposed doesn’t stun me.
The panel’s ruling consists primarily of drawing distinctions among the facts of leading Supreme Court preemption decisions and the details of the San Francisco ordinance, rather than of any sweeping view of preemption that would place mandates and fair share acts outside the scope of preemption, something which would set up a direct conflict with the Fourth Circuit’s ruling in Fielder, which found the Maryland Fair Share Act to be preempted. The distinctions that the panel relies upon are in many ways in the eye of the beholder, and it would be just as easy to argue the opposite, that the similarities of the San Francisco ordinance to the facts of the leading preemption cases mean that the ordinance should be understood to be preempted. The ruling also reflects, although obviously the panel is controlled by Ninth Circuit law in areas not yet passed on by the Supreme Court, a heavy reliance on Ninth Circuit decisions that do not necessarily reflect where this issue will end up if and when the Supreme Court finally weighs in on the preemptive effect of ERISA on state health care mandates and fair share acts, something which one can bet will happen sooner rather than later if the eventual ruling out of the Ninth Circuit on the San Francisco ordinance sets up a direct conflict with the Fourth Circuit’s ruling in Fielder.
ERISA Preempts Another One: Striking Down the San Francisco Ordinance
Permalink | Well, I have talked before about dog bites man stories, and here’s another one. The United States District Court for the District of Northern California has now ruled that San Francisco’s ordinance requiring certain health care expenditures by employers was preempted by ERISA. The Workplace Prof sums up the ruling here, although he is wrong that there is any disjunct between the court’s recognition that ERISA protects plan participants and the court’s finding that the ordinance is preempted; ERISA does impose certain statutorily created protections for plan participants, as the court recognized in finding the ordinance preempted, but simultaneously imposes certain corresponding protections for those who sponsor plans, such as employers, including that the federal statute alone is to govern their obligations, which is the whole point of the statute’s express and broad preemption provision.
Anyway, the ruling is here, and don’t say I didn’t warn you, as I did here, that this statute was doomed to be preempted. These first generation attempts to impose health insurance mandates on the business communities, such as this San Francisco ordinance, and the New York local ordinance discussed here, and the Maryland statute struck down by the Fourth Circuit, simply universally run afoul of the preemption provisions of ERISA. Maybe states will do better when they move onto some sort of health insurance 2.0 approach that accomplishes the same goals in a framework that does not impose administrative and fee obligations on employers - which are the consistent failings of all of the statutes and ordinances to date that have been struck down or eventually will be on grounds of ERISA preemption - but I will believe that when I see it.
One thing of particular note that caught my attention in the court’s ruling in this case, by the way, was its discussion of how the statute ran afoul of ERISA preemption in light of the Fourth Circuit’s ruling in Fielder, which struck down Maryland’s Fair Share act as preempted. As I have discussed before, I believe that the Maryland legislature enacted in that instance about as bad a statute for purposes of trying to avoid ERISA preemption as any advocate of state fair share and health insurance acts could have envisioned, and thereby created a leading ruling that could not help but lead to the preemption of many subsequent state and local health insurance ordinances. This case out of the Northern District of California is a perfect example proving my thesis; while the San Francisco ordinance would likely have been struck down as preempted on its own accord in any event, having the Fielder ruling in play made doing so easy for the court.
You know, much of the progressive legal developments of the last forty years, from civil rights to the environment, was driven by pressing test cases that were carefully selected to move the ball forward; allowing the Maryland statute to have become the bellwether on this topic was, for those clamoring for state regulation of employer provided health insurance, the exact opposite of those historical examples.
California, Fair Share Acts and Preemption: Have We Learned Anything At All?
Permalink | I’ve got a few things lined up this week to talk about, running from long term disability benefits litigation to avoiding ERISA litigation to subprime mortgages, but first I am going to veer off of my planned course to pass along and comment on a pair of interesting posts that showed up in my in-box today. They are both on the subject of California’s interest in trying to enact a fair share type statute imposing employer mandates and requiring the provision of health insurance, and you can find them here and here. I have talked before about the fact that California, like other state and local governments who tread this path, are likely walking right smack into the buzz saw of ERISA preemption, and much like the legislature of Maryland did in enacting its fair share act that was struck down by the courts, appear to be simply sticking their heads in the sand when it comes to this issue. That’s really the point of the two posts, which ask why the state government in California is moving in this direction without anyone even addressing this issue or trying to resolve it preemptively, before enacting a law that parallels laws that have been struck down from coast to coast (see this post here and here, for instance) as preempted. I asked the question before about the Maryland statute, the so-called Wal-Mart act, as to how the Maryland legislature could have gone down this road without having considered the ERISA preemption problem in advance, and these posts suggest that California is doing the same. Perhaps I need to create a category over on the left side of this blog titled “those who ignore the past are condemned to repeat it,” for the sole purpose of covering the seemingly endless examples in the area of health insurance of one state after another repeating the earlier mistakes of other state governments.
One of the posts on California’s efforts in this regard, namely this one here, suggests that some elements of the state government effort believe that the state can craft a statute that will not run afoul of ERISA or be preempted by ERISA. I am pretty skeptical that this is anything more than whistling past the graveyard. The closest I can come to an example of a state fair share type act that has not yet been found preempted is the Massachusetts health care reform act, and in my view, the only reason that hasn’t been declared preempted yet is that its burdens on employers are sufficiently limited at this point that no one has been motivated to challenge it in court. If anyone thinks that the entire business community (who, in the clever words of the New Yorker, have been unofficially deputized to carry the costs of health insurance in this country) would take a pass on this as well and allow a bellwether state like California to enact such a statute without it being challenged, I’ve got a bridge in Brooklyn that I’d like to sell you.
What the Copyright Act Teaches Us About ERISA Preemption
Permalink | Mixing up two of my professional interests and litigation specialties, ERISA and intellectual property, the United States Court of Appeals for the First Circuit just decided a case involving the scope of preemption under the Copyright Act. What’s particularly interesting to me is the characterization by a dissenting member of the panel about the scope of preemption under that statute as opposed to the scope of preemption under ERISA. The judge explained:
Unlike the few federal statutes which have been found to effect complete preemption (e.g., the governance of the Employee Retirement Income Security Act (ERISA) over all plan-"related" causes of action, see Metro. Life, 481 U.S. at 67; Hotz v. Blue Cross and Blue Shield of Mass., Inc., 292 F.3d 57, 59 (1st Cir. 2002)), the Copyright Act does not encompass all claims simply because the parties' dispute happens to involve a copyrighted work. See Venegas-Hernandez v. Asociacion de Compositores y Editores de Musica Latinoamericana, 424 F.3d 50, 58 (1st Cir. 2005) ("The Copyright Act does not draw into federal court all matters that pertain to copyright."); Royal, 833 F.2d at 2. . . .Unlike ERISA, 29 U.S.C. § 1144(a) (providing that ERISA "shall supersede any and all State laws" to the extent that those laws "relate to any employee benefit plan") (emphasis added), the Copyright Act's preemption provisions are not even remotely panoptic. The Copyright Act preempts only those "legal and equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified in § 106." 17 U.S.C. § 301(a) (emphasis added). Further, "[n]othing in [the Act] annuls or limits any rights or remedies under the common law or statutes of any State with respect to -- . . . activities violating legal or equitable rights that are not the equivalent to any of the exclusive rights within the general scope of copyright as specified in section 106A with respect to works of visual art." Id. § 301(b)(3) (emphasis added); see Blab T.V. of Mobile, Inc. v. Comcast Cable Commc'ns, Inc., 182 F.3d 851, 857 (11th Cir. 1999) (finding no complete preemption because the federal Cable Act contained language which "preserv[ed] state authority except in areas in which the exercise of this authority would be inconsistent with federal law"); cf. Metro. Life, 481 U.S. at 65-66 (citing -- as affirmative evidence of complete preemption -- legislative history that "[a]ll such actions in Federal or State courts are to be regarded as arising under the laws of the United States in similar fashion to those brought under section 301 of the Labor-Management Relations Act of 1947").
What’s interesting in this comparing and contrasting of the scope of preemption under ERISA and the Copyright Act is the focus on the deliberately broader language of preemption contained in ERISA and the deliberately narrower language of preemption contained in the Copyright Act. Many complain about the expansive scope of ERISA preemption that courts have applied, but as the dissenting judge's analysis here of preemption under the Copyright Act reflects, there is a sound statutory basis for imposing broad preemption of state law theories pursuant to ERISA, as Congress can and does expressly declare a statutory scope of preemption to be narrow when that reflects its intent and ERISA doesn’t contain that type of language.
The case is Cambridge Literary Properties v. W. Goebel Porzellanfabrik G.M.B.H., which you can find right here.
Permalink | If, like me, you are fascinated not just by ERISA but by history and politics, this two part law review article, by James Wooten at the University at Buffalo Law School, on how ERISA preemption came to be, looks to be a must read. Here’s the abridged version of the story detailed in his articles:
[The first of his two articles] recounts the key role of preemption issues in Congress's decision to pass ERISA. Until shortly before ERISA's enactment, employers and the AFL-CIO opposed comprehensive pension reform legislation. When states threatened to regulate private pension and welfare plans, however, the business community's and the AFL-CIO's strong desire for preemption all but forced them to support a federal pension reform law. Their support made passage of such legislation a virtual certainty. [The second of his two articles continues the story, explaining] how preemption issues led Congress to pass a broader pension reform law than it might otherwise have done. Business groups and the Nixon Administration hoped the congressional tax committees would limit the scope of federal regulation of pension plans. The congressional rules, however, gave jurisdiction over Congress's power to preempt state employment laws to the labor committees. Their control over preemption allowed the labor committees to bargain for broader regulation than business groups and the Administration preferred.
Some twenty years or so ago, the historian Arthur Schlesinger published his book The Cycles of American History, on the idea that certain themes in American political life rise, fall, and then rise again over predictable periods of time. In much the same way, you can see, in the current rush by states to enact fair share and other health insurance reform laws, a rebirth of the same urge to regulate that, as Professor Wooten points out, gave rise to ERISA preemption in the first place, some thirty years ago.
You can download Professor Wooten’s articles detailing this history here (the first article) and here (the second).
Preemption of Fair Share Acts: Did the Maryland Legislature Manage to Set The Whole Issue Back a Thousand Years?
Permalink | Here is Darren Abernethy’s law review note on preemption of state fair share acts that mandate that employers provide certain levels of health insurance. His note, which I have discussed before, is very well done, and Darren has generously allowed me to share it here in full. As readers may recall from earlier posts, Darren discusses the fact that the Maryland Fair Share Act, which as he points out in his note targeted Wal-Mart, was found by the Fourth Circuit to be preempted, and Darren proposes ways to create statutes of this type that might avoid preemption. It’s a terrific note, and in particular his history of the preemption jurisprudence is an excellent tutorial on that particular issue, and I myself will be quick to cite it on that point when briefing the issue in the future.
One particular aspect of Darren’s note struck a chord with me, and provoked a somewhat chilling thought. In discussing ways to craft these types of legislation that might avoid the preemption problem, he recommends - in essence - that such legislation be broad based, which is the opposite, in many ways, of the Maryland Fair Share Act, which I have argued before can be seen almost as a punitive statute aimed at only one employer. We all know the old saying that bad facts make bad law (or is it hard cases make bad law?), and the question that arises is whether that is a fair understanding of the Fourth Circuit’s Fielder decision that found Maryland’s Fair Share Act to be preempted. The Maryland statute clearly aimed at only one employer and was drafted to avoid implicating favored large Maryland employers such as Johns Hopkins Hospital, and that aspect of the statute can be seen in the district court and Fourth Circuit rulings as at least influencing, and possibly animating, the holdings by those courts that the statute was preempted. Might things have come out differently in the district court and the Fourth Circuit absent that factor? The statute might still have been found to be preempted, but it seems to me that those courts may at the least have been more open - even if still finding the act to be preempted - to nudging the law of preemption along in a way more favorable to these types of statutes had the courts been presented with a better and fairer looking attempt to mandate health insurance benefits. In essence, would the development of this area of the law be a little different if the leading court of appeals analysis of such a statute were, for example, of Massachusetts’ somewhat problematic but nonetheless broader health care reform act, than it will be given that the Fielder decision striking down the Maryland act now holds place of pride in that area of the law? Did the Maryland legislature, by putting one of the worst possible versions of such a statute before the courts, prevent the law from moving in a direction that might have helped such statutes avoid preemption?
One Proposal for Enacting Fair Share Legislation While Simultaneously Avoiding ERISA Preemption
Permalink | We previously mentioned William and Mary law student Darren Abernethy’s upcoming law review note presenting ideas on how to enact so-called fair share legislation - which attempts to obligate employers to provide certain levels of health insurance coverage - without running afoul of ERISA preemption. His note is now out, and those of you who, like me, don’t subscribe to the William and Mary Law Review, can access it right here. Here’s his abstract on what the note argues:
This Note examines Maryland's preempted statute and the United States District Court case that granted its opponents declaratory relief. After reviewing the Fair Share Act, the federal ERISA statute, and the significant changes in Supreme Court jurisprudence towards ERISA preemption in the past decade, this Note will offer new approaches through which states can modify the analytical framework outlined by the Fair Share Act to achieve improvements in the state-financing of Medicaid through large private employers. The goal of this Note is to analyze ways to fit future "fair share" legislation within the non-preempted confines of ERISA.
The proposed modifications include: (1) rewriting "fair share" laws as unequivocal, non-regulatory Medicaid taxes from which compliant employers may become exempt; (2) dulling the sharp edge of the FSA's punitive texture through decreasing the 100% shortfall tax to 35-50%; (3) expanding the options that employers have as "outlets" for meeting the 8% health expenditure benchmark, such as through an increase in non-medical fringe benefits, thus giving the statute a less coercive feel; (4) a "total package" benefits approach analogous to unpreempted ERISA prevailing wage cases; and (5) a state-initiated higher minimum wage for very large employers, with an incentivized exemption provision stating that an employer can revert back to the state or federal government's general minimum wage if the employer spends a certain percentage of payroll wages on employee health insurance.
Some Interesting Papers on the Issue of State Health Reform Mandates
Permalink | I have posted a fair amount on the impact of what are becoming known generically as “Fair Share” statutes, which are attempts to “reform” health insurance on a state level by means of mandating that employers provide health insurance benefits. I have talked about three main themes in my various posts on this topic, all of which stem from a certain skepticism as to whether these types of legislative responses to the problem of the uninsured are as well thought out as they are well intended. The first is the question of whether they are preempted by ERISA, and whether the rush by many states into this topic is a waste of resources, on the thesis that these state initiatives are likely to be found preempted, under the current state of the law. The second is the question of intended and unintended outcomes, and whether many of these state laws are really well thought out, or, two, whether the legislatures enacting them really know what they are getting into (for instance, just think of the Maryland legislature naively believing it could enact a statute that only mandated health insurance for Wal-Mart employees without running afoul of ERISA preemption, which of course ended in the federal courts striking the act down as preempted). And the third, finally, is the fact that these acts don’t target the real problem underlying the high rates of the uninsured, namely the ever increasing costs of health insurance. I have talked about all of these quite a bit, and you can find posts on them by clicking on the preemption, health insurance, or Massachusetts Health Care Reform Act headings over on the left hand side of this blog.
Here’s a couple of interesting articles I wanted to pass along that hit on at least two, and maybe three, of these themes. The first is this article here, titled “Labor Market Effects of Employer Provided Health Insurance,” which explores the question of how mandating that employers provide health insurance, as many of these state reform acts do, impacts employment. One of its findings? That mandating health insurance for all workers does in fact distort the labor market, but that even more interestingly, although perhaps as one would expect, “mandating the insurance only for full-time workers leads to higher [rates of] coverage than [without a mandate, but also to] an increased number of part-time workers.” If, as one would expect and this article suggests, there is a trade off between employment and the extent to which state laws mandate health insurance coverage, one would hope that state legislatures carefully analyze this issue before joining the current rush to mandate health insurance coverage.
Now, I am beginning to feel obliged by the tenor of my posts on this issue to note that I don’t disagree that the rate of the uninsured in this country is a real problem, and that my skepticism really runs to whether the increasing number of state attempts to address the problem - something they are probably foreclosed from doing by ERISA preemption anyway - represents the most thoughtful and effective way to tackle this problem. And this thought leads to the second paper I wanted to mention, which is law student Darren Abernathy’s upcoming law review note addressing the question of how to draft these types of laws to avoid ERISA preemption. This, at least, is a thoughtful attempt to get around some of the problems that arise when states target the problem of the uninsured by means of health insurance reform statutes. We need more of that type of forward looking and proactive analysis, and less of the willy nilly charge into the issue we are seeing by many state and local governments, who, having apparently learned nothing from Maryland’s experience, just keep enacting legislation on the slim hope that it won’t be preempted, rather than on an analysis and strategy that might place the statutes they enact outside the scope of ERISA preemption.
Bowater, Preemption, the Wall Street Journal Law Blog, Massachusetts Health Care Costs, and Whatever Else Is On My Mind This Morning
If David Rossmiller can do a potpourri to avoid writing a full fledged blog post then, by gosh, so can I. Conveniently enough, I had some three small items on my mind this morning anyway, all of which I will mention here in one fell swoop:
? More on Bowater: For those of you who were interested in yesterday’s post about the First Circuit’s ruling in Bowater, concerning termination of a benefit plan and a foul up in executing it as part of a corporate acquisition, the ever watchful S.Cotus, who never misses anything on any subject at the First Circuit over at Appellate Law & Practice, has this in-depth review of the Bowater decision. S.Cotus delves into the labor law issues that were also at play in the case, in addition to the ERISA issue that I commented on yesterday.
? I posted earlier in the week on the question of rising health insurance costs and how that was the elephant in the room that all of these state based attempts to reform health insurance were avoiding, and how that justified the preemption of those state acts in favor of a federalized and consistent nationwide approach to the problem. The Boston Globe has a detailed article today laying out the extent of the increase in health insurance costs just here in Massachusetts. The essence of the article is in the opening paragraph: “Massachusetts health insurers are predicting their rates will increase by about 10 percent next year for most residents covered through employer health plans, marking the eighth consecutive year of double-digit premium hikes.” Funny, but Massachusetts just implemented health reform legislation, so how can this be? The answer, I suspect, is in this post here.
? And finally, on a sillier note, the Wall Street Journal Law Blog is fascinated right now with preemption, posting several times on various applications of the doctrine in the last few days. Yet despite the fixation on preemption, they omit entirely what we all know is the most important and interesting application of preemption, namely ERISA preemption. While I write slightly tounge in cheek on this point, the truth is that, as we see with the attempts of states to legislate health insurance coverage in the face of ERISA preemption, this is in fact the one area of preemption that consistently affects broad numbers of everyday, real life people, as opposed to the smaller subset of directly affected businesses involved in the preemption cases discussed by the Wall Street Journal Law Blog over the last couple of days.
Why Health Care Inflation Numbers Justify ERISA Preemption of State Health Care Reform Legislation
Permalink | Someone once said that Marx was wrong about a lot of things, but he was right that everything is economics. Nothing illustrates this maxim more than the various attempts by states to get around ERISA preemption - such as discussed here and here - and mandate health insurance coverage in one manner or another. These attempts by states - which are simply doomed to eventual court declarations that they are preempted- seek to force employers to expand health care availability and, in some cases such as Massachusetts, to get those who fall outside of the employer provided health insurance system to buy their own coverage. The problem is that these legislative attempts don’t affect the real problem, which is that the costs of providing health insurance has escalated to the point where employers face huge financial disincentives to expand their offerings of health insurance and uncovered employees cannot afford their own policies. Here it is in stark black and white (literally, since it comes from the NY Times, rather than from the USA Today, where I guess it would be in stark color): “[t]he cost of employer-sponsored health insurance premiums has increased 6.1 percent this year, well ahead of wage trends and consumer price inflation, but below the 7.7 percent increase in 2006, the Kaiser Family Foundation reported today.” Beyond that, the article points out that “health costs had increased 78 percent since 2001, more than four times as fast as prices and wages.”
The ever increasing impact on the bottom line of providing health insurance is why the employer provided system isn’t expanding to cover more people, and why the uninsured cannot insure themselves. Although the Massachusetts reform act takes some steps towards altering that dynamic, at least with regards to those not covered by employer provided plans and who must instead insure themselves, the simple fact is the various state reform acts aren’t really directed at fixing this fundamental base line problem (and they probably can’t attack this problem effectively on a state by state basis, just further driving home a point I have made previously, that the availability of health insurance coverage probably should not be addressed on a state by state basis, should be addressed on a national basis, and that ERISA preemption of these types of state acts is a good thing as a result). Unless and until the base problem of the economic numbers is tackled, these reform acts aren’t targeting the actual disease, just some of the symptoms of it.
More on Preemption and Health Care Reform in California
Permalink | I posted a couple of days back about California’s interest in enacting a state health care reform law that, like the current law in Massachusetts and the Maryland Fair Share Act that was struck down by the courts, operates at least in part by imposing new obligations on employers who provide health insurance to their employees. In the post, I noted my skepticism that the state could pull this off without running afoul of ERISA preemption. The National Law Journal has an interesting article, available here, on the same subject, from which I took away two thoughts. The first is that the consensus opinion is exactly the one I voiced earlier this week, that California’s attempt is almost certain to be subject to preemption if challenged in court. The second is that any statutory enactment of this nature in California is, in fact, certain to be challenged in court, and quickly, if only because of California’s bellwether status in American economic and political culture, and the possible influence on other states if such a statute is allowed to stand in California.
California, Health Insurance and ERISA Preemption
Permalink | There’s an entertaining little story today in the Boston Globe on the question of whether, in the next few weeks, the California legislature and the Governor will roll out a state plan to reform health insurance by adding fees and other obligations to the employer provided health care system with the intent of providing universal health insurance, similar in some ways to what Massachusetts has done. I have talked frequently here about Massachusetts’ plan, which is in its earliest stages of implementation, with some concomitant glitches. Readers of this blog know I am highly skeptical of the ability of states to fashion these types of plans without running afoul of ERISA preemption, and, without knowing the details of the California plan, I am pretty skeptical they can pull it off either. In a nice little juxtaposition, for those of you who are interested in the question of how ERISA preemption impacts these types of attempts by states to change the health insurance paradigm, Sharon Reece out of the University of Maryland Law School has a very timely paper that is just out addressing the barrier posed by ERISA preemption to these types of state laws. The paper itself is available here, and the post from Richard Bales at Workplace Prof that brought it to my attention a few weeks back is here.
Go West for Health Care Young Man? Preemption and Employer Provided Health Care in San Francisco
Permalink | Here’s an article on Law.com today, out of the Recorder, on whether San Francisco’s version of a pay or play law mandating certain health care payments by businesses in the interest of bringing about the holy grail of universal health care coverage can survive ERISA preemption. The article points out, similar to what I discussed here, that federal courts have struck down similar laws in New York and Maryland. Based on the description of the San Francisco act in the article, I can’t say it sounds sufficiently different from the laws struck down in those cases that I would give it much chance of surviving a preemption challenge, with one caveat, that the Ninth Circuit, as it recently did with regard to the standard of review of benefit denial cases under ERISA, may be willing to shift the parameters of the law in this area. If it does, you will see the issue before the Supreme Court, as it is likely to create a direct conflict with the Fourth Circuit’s findings in Fielder, and on an issue - state regulation of employer provided health benefits - that is at play in more and more states every day.
Another Local Health Care Initiative Preempted, and What It Foretells for the Massachusetts Health Care Reform Act
Permalink | Roy Harmon over at his excellent Health Plan Law blog has the story of the decision last week by the United States District Court for the Eastern District of New York in Retail Industry Leaders Association v. Suffolk County, in which the court ruled that the Suffolk County Fair Share for Health Care Act (basically yet another local initiative directed at forcing Wal-Mart to provide greater health care coverage for its employees) is preempted by ERISA. The court’s opinion makes much of the fact that any attempt by a multi-state employer to comply with the statute would require the employer to create a different and separate administrative structure for that lone jurisdiction covered by the act, and that ERISA preemption applies as a result. The court’s approach drives home two points that I have commented on earlier in other posts on this blog.
First, with each local or state ordinance that is struck down as preempted, despite the attempt of each locality to insist that its statute is so fair or unintrusive that it should be left standing and it is alright if an employer has to do something different just with respect to that particular jurisdiction, it becomes apparent- or should, anyway, to anyone thinking through the issue - that, whatever the intentions of proponents of state laws altering health insurance on a state wide level, problems with the availability of health care and health insurance simply cannot be solved currently by a balkanized, state by state approach. Only addressing the problem at the federal level can possibly succeed; any other approach will result in employers facing the type of multiple and diverse administrative regimes that was rejected by the court in this most recent decision and that can only result in preemption.
Second, this decision points out that those who do not think that Massachusetts’ Health Care Reform Act is probably preempted are likely just whistling past the graveyard. Massachusetts’ statute is a fairly written and broadly applicable statute, and not the type of statute, like the one found preempted by the Eastern District of New York in this most recent preemption decision, that is simply a punitive statute, masquerading as a piece of broad based health care reform, directed at essentially one employer or one small class of employers (think big box retailers). Nonetheless, the exact same structural burdens and case law analyzed in the Eastern District’s decision likewise lead to the exact same conclusion - that ERISA preempts the act - when applied to the Massachusetts Health Care Reform Act. In truth, all you really need to do is globally replace the references in the Eastern District’s decision to the Suffolk County act with references to the Massachusetts statute, and you have the future ruling finding that the Massachusetts act is preempted.
More Thoughts on Whether the Massachusetts Health Care Reform Act is Preempted
Permalink | Wow, don’t think Massachusetts’ health care reform law doesn’t dictate to employers what type of health insurance to provide, only in a more subtle way than the state of Maryland did with its Fair Share Act based - but unsuccessful, thanks to ERISA preemption- attempted bludgeoning of Wal-Mart? At the risk of picking a fight, which isn’t the reason I write this blog (trust me, with my practice, I have enough fights going on at any given time, without looking for one more), this seems to be what Brian King, over at his ERISA Law Blog, thinks. But it is hard to square that view with this article right here, from the Boston Globe today, explaining how the state’s largest health insurer has abandoned plans to offer employers the opportunity to provide employees with a healthcare plan involving only a 33% contribution by the employer, because of pressure from the state government, which wants higher contribution limits so as to better implement the state’s health care reform act.
Now I am not saying that a one third contribution by employers is what we should want, but there may well be businesses for whom that type of plan makes sense, and for whose employees it is a better option than whatever else the employer could afford. And there is little doubt, as you see in this article, that this is a choice that is being taken away from employers by state action, as a result of the health care reform act. In essence, the state is dictating higher employer contribution limits, apparently wanting them to be at 50% or better.
Now Brian’s post is about preemption, and whether the state act imposes the types of restrictions on employers that could render the act preempted. Requiring these higher levels of contribution by employers doesn’t necessarily mean the act is subject to ERISA preemption, but it is the kind of action that defeats the argument that the state’s health care reform act only minimally infringes on employers’ operation of their benefit plans and thus is not invasive enough to warrant preemption, an argument that I seem to see more and more when it comes to the Massachusetts health reform act.
Partners, Domestic and Otherwise, and ERISA Preemption
Permalink | Here’s the Massachusetts Lawyers Weekly article on Partners Healthcare System v. Sullivan, the case I posted on a couple weeks back involving the question of whether preemption prevented the Massachusetts Commission Against Discrimination from taking action against Partners over its decision to allow benefits to be granted to its employees’ same sex, but not opposite sex, partners. It’s a good article that provides some nice context and background to the case. The Partners case is important to a certain extent, even if not doctrinally, because when you combine that case with Judge Gertner’s recent inquiry, addressed here, as to whether an employer could likewise limit benefits only to opposite sex, but not same sex, spouses, you see the complexities presented by trying to bring ERISA and state anti-discrimination laws into line with Massachusetts’ acceptance of same sex marriages.
ERISA and Same Sex Marriage
Here’s a great story out of Boston, by means of the Workplace Prof, that touches on several obsessions of this blog - ERISA, the federal arbitration act, and court review of arbitration awards. As the Prof explains in this post here, a federal judge for the District of Massachusetts is seeking amicus briefs related to whether or not the court should affirm or instead vacate an arbitrator’s finding that an employer could limit ERISA governed health insurance benefits provided to employees’ spouses only to spouses of the opposite sex. The arbitrator had determined that the benefits were collectively bargained for and that the limitation was appropriate under the collective bargaining agreement.
Now, presumably, the matter is before the District Court here on a motion by the losing party in the arbitration to vacate the award, given that the court is asking for amicus to address the question of whether the arbitration award and the employee benefit plan approved of by the arbitrator violate a clear Massachusetts public policy, given the state’s protection of same sex marriages. The court is inquiring as well into the question of whether that public policy, if it can trump the arbitrator’s award and thereby justify setting aside the arbitration award, is itself trumped by ERISA preemption, with the result, presumably, that the benefits offered by the employer have to be left as is.
There aren’t many states where this issue could really come into play, one would think, although I don’t know how many other states other than Massachusetts allow gay marriage, and thus can have employee spouses who are not of the same sex. Beyond that, the court’s response shows a serious involvement by the court in the question of whether an arbitration award was proper, which I have argued before in this blog is the appropriate approach of a court presented with a challenge to an arbitration award. While one might say the court is really reaching out quite far to address this issue, more than one would normally expect from a district court judge, I will take that any day over the situation I have noted in other posts on this blog, where judges sometimes seems to simply reflexively approve arbitration awards, or at least start with some sort of barely rebuttable presumption that the award should be upheld, both of which are approaches that I do not believe are justified under the Federal Arbitration Act. In addition, it is not particularly out of the norm in this particular federal district to reach out for help from the legal and business community in this way in this type of a case, as I can recall other judges in this district requesting amicus briefs on difficult questions involving the interplay of ERISA and federal or state anti-discrimination laws. Moreover, other judges, as discussed in this post of mine from a little while back, in this district are likewise continuing to struggle with the impact of ERISA on employers as they try to figure out how to structure their employee benefits when it comes to spouses, partners and other dependents, in this brave new world we live in here in the Commonwealth of Massachusetts.
Incidentally, the underlying arbitration award is one that I discussed here, in this post, some time ago, in case you want to know more about the underlying controversy.
Can Partners Healthcare Systems Provide Different Benefits to Different Kinds of Partners?
Judge Tauro of the United States District Court for the District of Massachusetts issued an interesting opinion this week as to the power, if any, of the Massachusetts Commission Against Discrimination to continue to investigate whether an employer, in this instance Partners Healthcare Systems - which operates major teaching hospitals, among other operations - violates state anti-discrimination laws by granting employee benefits to the unmarried partners of employees only in cases of same sex partners and not in cases involving heterosexual unmarried partners. As the court described the facts, Partners Healthcare “offers its employees a variety of health and welfare plans, which it alleges to be regulated by ERISA. Under these plans, [Partners Healthcare] offers employee benefits to unmarried same-sex domestic partners of its employees, but not to unmarried heterosexual domestic partners. . . . [An] employee of [Partners Healthcare] who has a heterosexual domestic partner, filed a charge of discrimination.”
At issue in the court’s opinion was whether the federal court should enter an order barring the state agency from investigating or taking other action against Partners Healthcare for the alleged discrimination on the ground that such state action would be precluded by ERISA preemption; the agency responded that the doctrine of Younger abstention - one of those doctrines that most of us never come across again once we have finished our law school exams - actually precludes the court from intervening with the agency’s investigation, regardless of the possibility of ERISA preemption.
Where did the court come out? It concluded that, in this circuit anyway, abstention is not appropriate where there is a facially conclusive case of preemption under ERISA, and that to the extent the agency is investigating ERISA governed plans offered by Partners Healthcare, the agency is barred from taking action; at the same time, however, the agency was free to proceed with regard to any benefits provided by Partners Healthcare that allegedly discriminate in the manner charged by the complainant where those benefits are not provided under an ERISA governed plan.
Although I admit I have little knowledge of the underlying employee benefit plans at issue, I doubt the ruling leaves much, if any, of the employee benefits offered by Partners Healthcare open to the state agency’s jurisdiction.
The case is Partners Healthcare System v. Sullivan, available right here.
The Massachusetts Health Care Reform Act and the Purposes of Preemption
Permalink | I have been meaning to come back to some issues concerning the Massachusetts Health Care Reform Act, the state’s potentially groundbreaking attempt to combine individual, employer and government roles to provide health insurance coverage for most of the Commonwealth’s uninsured, and now seems like a good time to do so, with its effective date coming up right around the corner. I have discussed before the question of whether the Act may be preempted by ERISA, and, if challenged, it would not surprise me if the employer obligations under the Act are struck as preempted. At the same time, it is important to bear in mind that the requirements imposed on employers by this particular statute are relatively benign, and this Act is nowhere near being the sort of heavy handed smackdown of particular targeted employers that was the now preempted and not particularly lamented law passed by the Maryland legislature that targeted Wal-Mart.
At the same time, the underlying issue with regard to preemption of state regulation of employer provided health insurance has to do with whether we should insist upon maintaining one consistent overlay of federal law and regulation on the subject, as is the case if state acts of this nature are consistently preempted, or whether we should instead, as the old saying goes, allow “a thousand flowers to bloom,” in the guise of allowing multiple different state experiments to address the problem of the uninsured. If the latter is to be the case, then that is where you really begin to run into problems of the type that underlie the preemption debate. It is one thing to say that the Massachusetts Act imposes only the most benign of record keeping and costs on nationwide employers, so perhaps preemption should not apply to it. But the issue becomes something entirely different when you instead consider having 30 or 40 or 50 states come up with their own experiments that likewise impose only minimal obligations on employers, each one so relatively benign, standing alone, that it is hard to justify declaring it preempted; when you combine all of those different regulatory regimes, however, then you start to get into the kind of conflicting and burdensome web of state actions that can become a real and legitimate burden to a nationwide employer. It is that ultimate result, that web of inconsistent state by state mandates, that the preemption requirement under ERISA is intended to guard against.
And a couple of other points on this question beg to be mentioned, although I don’t feel like I have seen them anywhere with regard to the preemption question. First, if you take away consistent overarching federal control of the question and allow state by state regulation of employer provided health insurance, how quick will we start to see a “race to the bottom” mentality, with at least some states looking to impose the least health care requirements possible on nationwide employers so as to attract businesses to relocate or at least site facilities there? We have seen it in the past with other subject areas that states pitch as competitive advantages over other states; I see no reason why health insurance should be one that is immune from such economic pressures and realities. There are certainly aspects of the Massachusetts Health Care Reform Act that I can think of right off the top of my head that a competing state could leave out, while incorporating in their own statutes all the other aspects of the Massachusetts Act, that might well tilt the balance - in at least a close case - for an employer deciding where to site its business.
Second, the idea of preferring state regulation of a health insurance marketplace that is predominately an employer provided product is premised, at heart, on the assumption that the state approaches will be an improvement over what could be done under the sort of federalized employer provided system we currently have. How confident really are we about this? It is probably fair to say we really won't know until at least some state - here Massachusetts - is allowed to impose its own regime and we wait and see how well it works out.
And when you consider all of these issues, this is when you start to get an inkling of why solving the uninsured problem on a federal level, rather than on a state by state level, with a consistent overall approach structured on the already existing infrastructure of the employer provided, ERISA governed model, may actually be the better approach.
ERISA Preemption and Universal Health Care in Massachusetts
Permalink | Well, the world of ERISA preemption, without Maryland’s Wal-Mart law to focus on anymore, turns its lonely eyes to Massachusetts’ universal health insurance statute, with the Boston Business Journal posting a front page article this week that says, in essence, it might be preempted but then again, maybe not.
Whether or not this statute is actually preempted is one of those questions on which I could credibly argue either way, so there is some room for debate here. However, Ed Zelinsky of Cardozo School of Law, who generally knows what he is talking about with regard to preemption, has concluded in one of the first, if not the first, detailed academic analysis of the question that the Massachusetts statute is in fact preempted. Zelinsky’s paper finds that:
Major features of the new Massachusetts health law are ERISA-preempted as forbidden regulation of employer-provided health care.
This is a regrettable conclusion but one mandated by the ERISA Section 514 and the controlling case law. ERISA preempts the new law's mandate requiring covered Massachusetts employers to sponsor medical plans for their employees and to make “fair and reasonable” contributions to such plans. ERISA also preempts the new law's requirement that Massachusetts residents maintain “minimum creditable coverage” for health care as that requirement effectively mandates for Massachusetts employers the substantive medical coverage they must offer their employees...
As is often the case when law review papers cross my desk, credit is due the Workplace Prof blog for bringing Professor Zelinsky’s law review article to my attention.
Preemption and Health Insurance Benefits
Permalink | Maryland has given up the fight over its Wal-Mart bill, which essentially targeted Wal-Mart and tried to force it to increase the health care benefits provided to its employees; as many of you will recall, the Fourth Circuit and the district court both found the act to be preempted by ERISA. Most commentators, including this one, agree that it is preempted, under current law. Maryland officials will not try to take the issue to the Supreme Court, feeling that they are unlikely to be successful. I suggested as much a while back, in this post.
An interesting counterpoint, for those of you with access to the National Law Journal and/or its subscription only website, is an opinion piece by law school professor Ed Zelinsky, whose work I have commented on in the past here in this blog, that Congress should address the problems of availability and affordability of health insurance by revoking federal preemption of the issue and allowing states to pass their own initiatives to try to solve the problem. I guess I have a few thoughts and concerns on that issue, the first of which is that, for every example, such as Massachusetts’ effort to provide universal health insurance for the currently uninsured, of a broad based effort to address a fundamental problem, there is a countervailing example, such as the Maryland act, of a statute that is narrowly crafted at only one small piece of the problem, often one, such as Wal-Mart, that can be easily vilified. In addition, state by state regulation in other areas is certainly not devoid of a “race to the bottom” mentality, where states seek competitive advantage over others in attracting employers by imposing lesser burdens on companies than do other states. I would hate to see that happen in health care and health insurance, which is an area already bedeviled by enough problems; a universal, national health care solution, rather than the removal of preemption with a resulting state by state system, avoids this problem.
Equitable Relief Under ERISA in the First Circuit Post-Sereboff
Permalink | The district courts in the First Circuit have been so busy issuing ERISA related decisions recently that it has become difficult to find time to post on other things that I also want to talk about. That said, however, the District Court for the District of Maine just issued a remarkable opinion that I both wanted to comment on and to be sure to spotlight. The case is Curran v. Camden National Bank, and it involved the question of whether the defendant bank owed hundreds of thousands of dollars to a multi-employer health care trust upon its withdrawal from the group. There are a few things that are really note worthy about the ruling. First of all, the decision is a nicely crafted survey of the law in this circuit as it currently stands on a number of topics, in particular: the extent to which, after Sereboff, equitable relief is available under ERISA in this circuit; the proper analysis of preemption; and the determination of fiduciary status for purposes of a claim for breach of fiduciary duty.
One could pick the court’s analysis of any of these three issues to focus on, and have plenty to write about, but today I will comment in particular on the court’s discussion of the viability of claims for equitable relief in this circuit after Sereboff, particularly since the court points out that the First Circuit itself has not yet found reason to interpret and apply Sereboff, other than to cite the case for the proposition that “what forms of relief are considered equitable is a matter in dispute.” On this issue, the district court began by providing a handy blueprint for analyzing claims for equitable relief in this circuit, and whether they can proceed without running afoul of Supreme Court precedent. Addressing “29 U.S.C. § 1132(a)(3), which provides [that a] civil action may be brought 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,” the court stated:
By its terms, however, section 1132(a)(3) authorizes only "those categories of relief that were typically available in equity." Sereboff v. Mid Atl. Med. Servs., U.S. , 126 S. Ct. 1869 (2006) (quoting Mertens v. Hewitt Associates, 508 U.S. 248, 256 (1993) (emphasis in original)). If the plaintiffs seek legal as opposed to equitable relief, "their suit is not authorized by § [1132(a)(3)]." Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 218 (2002).
The First Circuit has set forth a two-step inquiry to evaluate a cause of action under § 1132(a)(3): "1) is the proposed relief equitable, and 2) if so, is it appropriate?" LaRocca v. Borden, Inc., 276 F.3d 22, 27-28 (1st Cir. 2002). With respect to the first prong, under ERISA, "'equitable relief' includes 'those categories of relief that were typically available in equity (such as injunction, mandamus, and restitution, but not compensatory damages).'" Id. at 28 (quoting Mertens, 508 U.S. at 256). Turning to the second step, the purpose of § 1132(a)(3) is to serve as a "safety net, offering appropriate equitable relief for injuries caused by violations that §  does not elsewhere adequately remedy." Id. (quoting Varity Corp. v. Howe, 516 U.S. 489, 512 (1996)).
This is a very handy formulation that one can borrow to begin the section of any brief submitted in this circuit arguing over whether or not a particular claim can proceed under this section of ERISA. The court then went on, however, to provide far more analysis and guidance on this issue, explaining how a proper analysis of Sereboff and subsequent history from other circuits established that the plaintiffs were seeking a legal remedy dressed in the clothing of equitable relief, and that the claim therefore could not proceed under this statutory section.
Second of all, the bank’s lawyers did a terrific job here, drawing the court across a diverse range of ERISA issues and convincing the court that none of the plaintiffs’ claims were viable in light of the statute and case law interpreting it. I tip my hat to the bank’s lawyers for a terrific win.
Insurance Brokers as ERISA Defendants
Roy Harmon, over at his Health Plan Law blog, has his typically scholarly take on two recent rulings out of the United States District Court for the District of New Hampshire in the case of Hopper v. Standard Insurance Company. The rulings primarily revolve around the question of which claims in the lawsuit are preempted under ERISA, and the law, reasoning and rulings of the court on these issues is consistent with First Circuit law, which grants a pretty broad sweep to ERISA preemption. What caught my eye about the case, however, and was of particular interest to me, was the discussion of whether the claims against one of the defendant entities that was involved in the insurance program at issue, namely the insurance broker, were preempted. The court, in one of its two rulings, determined that the broker did not play the role of a fiduciary, was not subject to ERISA, and that the claims against it were not preempted as a result. The court explained:
Hopper's misrepresentation claims against WGA [the insurance broker], however, are different. Unlike Standard, which functions as an ERISA entity, see Hampers, 202 F.3d at 53 (citing Stetson v. PFL Ins. Co., 16 F. Supp. 2d 28, 33 (D. Me. 1998))(explaining that the "primary ERISA entities are the employer, the plan, the plan fiduciaries, and the beneficiaries of the plan"), WGA is strictly an insurance broker, engaged in sales and marketing functions.
WGA had no direct control over Standard's insurance policy or the benefits plan. WGA did not administer the plan, and did not determine participant eligibility for benefits or consider appeals of benefit denial. Put differently, Hopper's claims against WGA are limited to WGA's "role as a seller of insurance, not as an administrator of an employee benefits plan." Woodworker's Supply, Inc. v. Principal Mut. Life Ins. Co., 170 F.3d 985, 991 (10th Cir. 1999).
This result is consistent with the underlying goal of ERISA "to protect the interests of employees and other beneficiaries of employee benefit plans." Morstein v. Nat'l Ins. Servs., Inc., 93 F.3d 715, 723 (11th Cir. 1996). "If ERISA preempts a beneficiary's potential cause of action for misrepresentation, employees, beneficiaries, and employers choosing among various plans will no longer be able to rely on the representations of the insurance agent regarding the terms of the plan." Id. As a result "[t]hese employees, whom Congress sought to protect, will find themselves unable to make informed choices regarding available benefit plans where state law places the duty on agents to deal honestly with applicants." Id. at 723-24.
Accordingly, Hopper's misrepresentation claims against WGA are not preempted by ERISA.
I think at least this part of the ruling, though arguable, is correct, so I don’t have any real quibble with it. What catches my eye, however, is the issue it raises, of whether an entity involved with an ERISA governed plan is better off staying out of the eye of the storm by avoiding a role that would grant it fiduciary status, or is instead better off playing a large enough role in the administration of the plan to end up being assigned that status. Falling outside of the ERISA framework leaves the entity exposed, as was the broker here, to a range of common law and state statutory claims; indeed, the potential exposure of such a defendant is limited only by the imagination of plaintiffs’ lawyers (and to a certain degree, the actual facts). On the other hand, coming within the realm of entities regulated by ERISA would preclude those types of claims from being asserted against the entity, while limiting recovery to that which is authorized by ERISA.
Granted, it is probably not something that the insurance broker in the Hopper case gave any thought to at the commencement of its involvement with the plan in question, but it might be something for any entity playing a role in an ERISA governed plan to consider at the outset of their retention: should they put themselves in a position to be a fiduciary subject to ERISA, or should they avoid that like the plague?
ERISA, Interpleader and Qualified Domestic Relations Orders
Recently, waiting for a pretrial conference in federal court on one of my cases, I listened as a judge explained to the lawyers in a different case, based on only knowing the causes of action, what the actual facts of the case before him must be, even though he had never heard from the parties before. He did, in fact, actually nail the general outline of the case off the top of his head, and the lawyers for the parties simply had to fill in a few of the more specific facts for him. The judge explained that he had seen that type of case a thousand times before, and the fact patterns were always basically the same.
I was reminded of this when I read this recent decision by Judge Tauro in the Massachusetts federal district court, which concerns competing claims to life insurance proceeds provided under an ERISA governed plan. It seems as though the facts of this case are likewise always the facts in these types of claims: a divorce proceeding, followed by a standard state probate court order forbidding the husband from removing his soon to be ex-wife as the beneficiary, followed in short order of course, by the husband changing the beneficiary to his girlfriend (usually followed not long afterward by the husband’s demise, although no one has proven - to my satisfaction anyway - a causal linkage between that and either the girlfriend or the change in beneficiary).
Now of course what happens in that case is you end up with two competing claimants to the life insurance proceeds, one of whom - the ex-wife - asserts that she could not have legally been removed as the beneficiary, and the other of whom - the girlfriend - claims that she is the beneficiary pursuant to the plan’s terms and therefore must be paid the proceeds, at least if the plan’s terms are going to be enforced. And then what happens next of course, is that the plan administrator, quite rightly, files an interpleader action asking the court to figure out which one of the two should get the proceeds. A plan administrator would err if it did anything else, as ERISA preemption and the plan’s terms would suggest that the girlfriend should get the proceeds, but this would be in direct contradiction of a probate court order; there is no reason for the plan and its administrator to be stuck between the rock of the plan and the hard place of the probate court order. And avoiding being stuck in this type of position is exactly why federal law allows interpleader in this situation.
Judge Tauro, in his opinion at the end of January in Unicare Life & Health v Chantal Phanor et al, presents in a very logical manner exactly how this issue should be considered and resolved, finding that the proceeds should be paid out to the former wife under this scenario, so long as the probate court order qualifies as a qualified domestic relations order (“QDRO”) for purposes of ERISA. As the court explained, Congress expressly exempted QDROs from preemption, so as to allow probate courts to properly divvy up marital assets. The key issue with QDROs, and whether the beneficiary designation mandated by them should govern instead of the beneficiary designation that would govern if the terms of the plan controlled the issue, is that there are specific characteristics of the order that must exist for it to qualify as a QDRO. An issue of controversy, and which was at the center of the dispute in Unicare, is how strictly those requirements should be applied, and whether a probate court order that only loosely fits the requirements can qualify as a QDRO for these purposes. Judge Tauro came down squarely on the side of not taking those requirements literally, instead requiring only that the probate court order fit generally within the requirements and fall within the purpose intended to be served by QDROs.
For some reason, the Unicare decision is not currently available on the Massachusetts District Court's website, but I will keep an eye out and post a link to it when it becomes available. For now, it can be found on Lexis, at 2007 U.S.Dist. LEXIS 6136.
Wal-Mart and Preemption
It is likely that if you are interested in the subject of this blog you already know that the Fourth Circuit has now affirmed the District Court decision striking down Maryland's Fair Share Act. Workplace prof has a nice post summing up the issue here, and major media accounts can be found here and here. Workplace prof poses the question of whether this is a decision on its way to the Supreme Court, and expresses some skepticism on that point. I am skeptical as well, but for a different reason, namely that the decision is essentially a preemption case, and there is nothing really novel going on in that area, either in general or in this particular decision, that would make me think it is obvious grist for the Supreme Court mill. Rather, the case is in essence a routine application of the law of preemption, only to a politically and socially - rather than legally - charged set of facts.
Mandated Health Benefits and Preemption in San Francisco
Permalink | Here is a neat post about the latest skirmish over state or local attempts to mandate health benefits and whether doing so is preempted by ERISA, this time in San Francisco, where an organization representing restaurant owners is challenging a city ordinance mandating the provision of health benefits. This is echoes of the Maryland Fair Share Act and its attempt to make Wal-Mart provide health care for its employees, something I talked about here and here and here, an attempt that was deemed preempted by ERISA. I have talked in the past about how that ruling set the stage for fighting out the same battles elsewhere, as states and municipalities try to address the problem of uninsured workers in the face of ERISA preemption.
One thing that is interesting to me about these types of stories is the manner in which these attempts to mandate the provision of health care benefits run up against what has long been a central tenet and long held understanding of ERISA, which is that it was enacted by Congress not to mandate the provision of benefits but instead to encourage employers to do so, in part by creating a self-contained universe governing the issue. But it may be that we have now reached a point where the bigger societal issue and the one that many elected bodies are struggling mightily with is whether to require health care benefits, something entirely different than the issues of import when ERISA was enacted. In some ways, one can think of the preemption conflict over these types of state and local mandates as reflecting a clash of two eras, the earlier one in which ERISA, including the preemption requirement that is preventing these types of mandates, was created and the current era, in which the need to address gaps in the employer based health care system has come to the forefront as a significant issue. While there may be a lot to be said about this point, at a minimum we can safely say that the past right now is trumping (or perhaps preempting?) the present.
Employee Welfare Benefit Plans and the Small Employer
Preemption is a tough defense to get around, particularly in the First Circuit, where it is taken quite seriously and numerous decisions expressly declare particular state law causes of action to be preempted by ERISA. One clever response to this problem, at least when the facts will allow the argument, is to try to sidestep any fight over preemption itself by arguing that the benefit at issue was not even provided by an employee welfare benefit plan and that as a result, ERISA does not apply and state law claims over the denial of the benefits are actionable. There is more room to maneuver on such an argument than in a battle over preemption, because the test recognized in the First Circuit for determining whether a benefit was in fact provided by an employee welfare benefit plan is mutlipronged, fact based, and, on at least some elements of the test, rather amorphous. At the same time, however, it doesn't take much for an employee benefit to qualify as an ERISA governed employee welfare benefit plan, at least in this circuit.
The test is laid out and then explored in great detail in a recent decision, James O'Leary v. Provident Life and Accident Insurance Co., by Judge Saylor of the United States District Court here in Massachusetts. The court explained that "an employee welfare benefit plan has five elements: (1) a plan, fund, or program (2) established or maintained (3) by an employer or by an employee organization, or by both, (4) for the purpose of providing. . . disability. . . benefits (5) to participants or their beneficiaries," and that these are factual inquiries. In many instances involving larger employers, the application of these factors and the conclusion that should be reached are transparent from the outset; even without looking closely at the factors, there is little room to doubt that, for example, a large company's disability benefits plan for its employees satisfies these elements and is an ERISA governed plan.
What made the application of these factors interesting in the case before the court was the particular dynamic generated by the fact that it was a small employer and many of the facts at issue with regard to the employment benefit in question were unique to that one employee who was denied the benefits in question and was filing suit. This fact pattern took the case out of the realm of if it "looks like a duck and walks like a duck, its an employee welfare benefit plan," and placed it instead in the realm of coverages that might just be personal to the employee rather than part of an ERISA governed plan. It wasn't, the court eventually concluded, but the analysis in reaching that point is informative.
Preemption, Appellate Review and Plan Interpretation in the First Circuit
The First Circuit released its most recent ERISA decision, Carrasquillo v. Pharmacia Corp., a few days ago. Of interest in the decision, the court notes the standards that the appellate court should apply in reviewing a district court's entry of summary judgment when the arbitrary and capricious standard applies. The court reiterated that while the First Circuit reviews a district court's summary judgment decision de novo, if the district court's decision was governed by "arbitrary and capricious review, [the First Circuit] evaluate[s] the district court's determination by asking whether the aggregate evidence, viewed in a light most favorable to the non-moving party, could support a rational determination that the plan administrator acted arbitrarily in denying a claim for benefits;" if not, then the First Circuit will uphold the plan administrator's determination.
The First Circuit also spends a little time in this case reemphasizing that an administrator's interpretation of the plan terms, and not just its ultimate benefit determination, is to be accepted and applied by the court in ruling on the challenge to the benefit determination so long as the administrator's interpretation was not arbitrary and capricious, if the plan reserved discretion over such interpretation to the administrator. And what does it mean to be an interpretation that is not arbitrary and capricious? It simply means the interpretation needs to be reasonable.
The court also returned to what was once a common point of contention in this circuit, namely whether and to what extent judicial review of a benefit determination is limited to the administrative record that was before the administrator at the time the administrator decided the claim for benefits. A series of First Circuit opinions issued in the last few years put an end to any question over this issue, to the point that in this most recent decision, the First Circuit saw no need to make any further comment on this point than to note that "there is a presumption that judicial review is limited to the evidentiary record presented to the administrator."
And finally, in something I liked, the court summed up the state of preemption law in this circuit, and provided a nice little handy one paragraph starting point for lawyers who might brief preemption issues before the district courts of the First Circuit in the future, stating:
We next turn to the district court's finding that Otero's state law claims are preempted by ERISA. In light of ERISA's goal to promote uniformity in the nationwide regulation of employee benefit plans, Congress designed the statute to supersede "any and all State [causes of action] insofar as they may now or hereafter relate to any employee benefit plan." Id. (emphasis added). The Supreme Court has identified two instances where a state cause of action relates to an employee benefit plan: where the cause of action requires "the court's inquiry [to] be directed to the plan," or where it conflicts directly with ERISA. . . . Because the resolution of Otero's Commonwealth law claims for fraudulent inducement and intentional infliction of emotional distress would require analysis of the Plan, the district court correctly concluded that they are preempted.
Zelinsky, Wal-Mart, and the Fair Share Act
Well, this is interesting. Here is a forthcoming law review article from Ed Zelinsky of Cardozo on the Maryland Fair Share Act, Wal-Mart and preemption, issues I talked about here and here. As the abstract shows, the professor concludes that a federal district court correctly held that Maryland's statute targeting Wal-Mart's health insurance program was preempted. I like this article, maybe because, in far more pages and after far more study, he reaches the same conclusion that I reached in a short period of time and by means of only a few relatively short posts (see this one for instance). To be fair though, there is also a lot more contained in his article than could be captured in the context of a blog, all of which simply reflects that each of these forums for discussing legal issues has it own strengths and weaknesses.
And if it seems like I am on a bit of a law review article kick these days, its because the Workplace Prof Blog, to which I subscribe, dumps links to the latest relevant law review articles into my email on a daily basis.
Preemption Problems, Big Box Stores and Health Insurance
Now here is a neat post about New Jersey using disclosure - and presumably the hope that embarrassment will cause a change in behavior - to address the problem of large employers who, instead of providing health benefits, allow subsidized state health care programs to provide the health insurance for their employees. This is in contrast to trying to mandate that employers pay for such care, directly or indirectly, for their employees, as was the case in Maryland with the Fair Share Act, and the problems with ERISA preemption that this more direct approach provokes.
I am not sure publicity and embarrassment will do the trick in solving this problem, but until someone figures out a way around the preemption problem that derailed Maryland's more direct attempt to tackle this problem, this may be as good an approach as any that a state government can pursue.
While I have been focused on the interior life, if you will, of the decision in Retail Industry Leaders Association v. Fielder - its reasoning, whether it was correctly decided - others have been focused more on the impact of the decision outside the state of Maryland. Jerry Kalish of the Retirement Plan Blog has been covering the question of whether it impacts a Chicago ordinance intended to raise benefit and wage levels, and the California Labor & Employment Law Blog points out the impact of the decision on "proposed California legislation [that is] very similar to Maryland's overturned law" and which requires a similar minimum amount of benefit expenditures. Meanwhile, Pensions & Benefits Weblog takes a still broader view, noting that "many other states [have] comparable legislation under consideration [and that] [t]his is but an early battle in a very very long war ahead."
Preemption and the Fair Share Act - Some More Thoughts
I was thinking a bit more over the weekend about Retail Industry Leaders Association v. Fielder (and, yes, I know I obviously need a hobby), and Judge Motz' determination that the Fair Share Act is preempted by ERISA. Although the court's opinion makes it sound straight forward, the truth is that the outer boundaries of ERISA preemption are actually somewhat amorphous. Here in the First Circuit, by precedent and judicial temperament, preemption is stringently applied, and even coming close to infringing on the operation of employee benefit plans or on ERISA's remedial scheme will typically be enough to invoke preemption; judges in other circuits are sometimes a little more tolerant, at least up to a certain point, of causes of action or statutes that touch upon those topics.
Now in the case of the Fair Share Act, without bothering to first research Fourth Circuit precedent on preemption, I am of the mind that if it looks like a duck, walks like a duck and quacks like a duck, it is preempted. This is pretty much how Judge Motz saw it.
At the same time, however, if it is this obvious, one has to wonder why the Maryland General Assembly spent so much time and taxpayer treasure debating and enacting this statute. Wasn't there a lawyer somewhere on staff on some committee or another who should have caught this point? And if the General Assembly is like most state legislatures, one can assume that many of the politicians debating its merits were lawyers, and one would like to think this issue would have at least crossed their minds as something that had to be considered before voting on the Act.
This issue may well have been flagged and considered before enactment; I simply don't know. But I will be curious to see as this issue progresses up the appellate ladder whether there may be something more here on the question of whether the Act is preempted than is immediately apparent from the court's opinion. Perhaps when briefs to the Fourth Circuit are filed we will know a little more. And perhaps once I spend a little more time thinking about it, it might pop out at me.
Wal-Mart, Maryland and the Fair Share Act
The United States District Court for the District of Maryland issued its opinion yesterday on the legal challenge to the Fair Share Act, the Maryland statute recently enacted for the purpose of forcing Wal-Mart, and only Wal-Mart, to increase its health care spending for its employees. Major media accounts of the ruling are here, here and here. There is a tremendous amount of grist for the mill in this decision, which ranges logically and fluidly across issues of standing, ERISA preemption, the Tax Injunction Act and the Equal Protection Clause of the United States Constitution.
What jumps out at me today though, on a first reading, is its central ruling, the holding that ERISA preempts the Act. ERISA preemption is typically litigated in the context of a plan or a fiduciary defending itself against an action seeking to impose liability on it beyond that allowed by ERISA; it usually involves attempts by plaintiffs to add liability (and greater damages than could be recovered under ERISA) by means of state statutory and common law causes of action that, while generally available in actions against most types of defendants, are precluded by ERISA preemption from being brought against an ERISA governed entity.
Here, though, what we see is a much rarer creature, the affirmative use of preemption by an ERISA governed entity for the purpose of precluding the application to it of a state law enacted for the express purpose of modifying the operation of a benefit plan. The District Court concluded that because the Act strikes directly at an ERISA plan and its operations, it is preempted by ERISA. Both in the use of the preemption doctrine as a sword here by the plaintiff and in the court's analysis and application of the doctrine, we end up with something far removed from the tactical litigation use of preemption we find in most reported decisions on the issue, and with something that is instead closer to the pure core and heart of the doctrine and its purpose, which is, as the court framed it, protecting "ERISA's fundamental purpose of permitting multi-state employers to maintain nationwide health and welfare plans, providing uniform nationwide benefits and permitting uniform national administration."