Land v. Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Health and Welfare Fund, s. 93-2454

Decision Date26 May 1994
Docket NumberNos. 93-2454,s. 93-2454
Citation25 F.3d 509
Parties, 28 Fed.R.Serv.3d 1362, 18 Employee Benefits Cas. 1471 Tommy LAND, Plaintiff-Appellant, Cross-Appellee, v. CHICAGO TRUCK DRIVERS, HELPERS AND WAREHOUSE WORKERS UNION (INDEPENDENT) HEALTH AND WELFARE FUND, Defendant-Appellee, Cross-Appellant. & 93-2463.
CourtU.S. Court of Appeals — Seventh Circuit

John B. Cashion (argued), Chicago, IL, for Tommy Land.

Joseph M. Burns, David S. Allen (argued), Jacobs, Burns, Sugarman & Orlove, Chicago, IL, for Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Health and Welfare Fund.

Before POSNER, Chief Judge, ROVNER, Circuit Judge, and MIHM, District Judge. *

ROVNER, Circuit Judge.

Tommy Land, a participant in the defendant self-funded, welfare-benefit plan, maintains that the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. Secs. 1001 et seq., is unconstitutional as applied. Land asserted two claims before the district court under a variety of constitutional theories. The court dismissed both claims pursuant to the Fund's motion but denied the Fund's request for Fed.R.Civ.P. 11 sanctions. Land now appeals the dismissal of one claim, and the Fund cross-appeals from the district court's refusal to impose sanctions. We affirm the dismissal of Land's complaint but conclude that Rule 11 required the imposition of an appropriate sanction for the pursuit of a claim under 42 U.S.C. Sec. 1983 without an adequate pre-filing inquiry into the law. We therefore reverse the denial of sanctions and remand for the district court to enter sanctions in an appropriate amount.

I. BACKGROUND

Although Land's complaint is not a model of clarity, we look to that pleading in reviewing the district court's dismissal order. We may consider only the well-pleaded factual allegations in the complaint and any reasonable inferences that may be drawn therefrom in determining whether Land has stated a claim under any of his legal theories. See, e.g., Gould v. Artisoft, Inc., 1 F.3d 544, 546 (7th Cir.1993).

Land's first claim for relief was based on 42 U.S.C. Sec. 1983. Land alleged that he had been involved in an automobile accident, that he had sued the other party to the accident in the Circuit Court of Cook County, Illinois, and that he had received $182,500.00 in a settlement of that suit. Land maintained that the settlement did not fully compensate for his injuries, although he conceded that a portion of the settlement was intended to cover $42,604.92 that the Fund had advanced for Land's medical expenses. The ERISA plan under which those benefits were paid obligates Land to reimburse the Fund for covered expenses if he is subsequently compensated by a third party. Land acknowledged the Fund's right to reimbursement but maintained that its recovery should be discounted to reflect the legal fees he incurred in procuring the settlement. Specifically, Land contended that under Illinois subrogation law, he would be entitled to reduce the Fund's reimbursement by one-third. 1 See, e.g., Baier v. State Farm Ins. Co., 66 Ill.2d 119, 5 Ill.Dec. 572, 361 N.E.2d 1100, 1102-03 (1977). Because ERISA supersedes any and all state laws relating to covered plans, however (see 29 U.S.C. Sec. 1144(a)), this Illinois doctrine is not available to Land, and the terms of the plan require reimbursement of the entire amount without the deduction of any attorney's fees.

Land alleged in count I that enforcement of the plan would deprive him of a property right in violation of Article III, section 1 of the United States Constitution, the Tenth Amendment, and the Due Process and Equal Protection Clauses of the Fourteenth Amendment. Land maintained that because the Fund asserted an entitlement to full reimbursement under ERISA, the Fund was acting under "color of law" for purposes of section 1983. He therefore requested a declaratory judgment to the effect that the Fund was entitled only to a discounted recovery under Illinois law. Land also requested that he be permitted to recover a reasonable attorney's fee pursuant to 42 U.S.C. Sec. 1988.

In count II, Land alleged that to the extent the Fund was seeking a complete recovery of benefits paid out under the plan, it was acting on the basis of a federal statute (ERISA) that is unconstitutional as applied. Land primarily maintained that ERISA is unconstitutional because it delegates to private welfare-benefit plans the authority to preempt state law.

The Fund immediately moved to dismiss Land's complaint and also requested the imposition of Rule 11 sanctions. The Fund argued that Land had not stated a claim under section 1983 because he had not alleged that the Fund had acted under color of state law. Land did not contest the Fund's assertion but instead responded that the section 1983 claim should have been brought under 42 U.S.C. Sec. 1981. (R. 60-61.) Most of Land's response, however, addressed count II of the complaint--that ERISA as applied here constitutes an improper delegation of legislative authority to a private entity.

The district court's order of dismissal also primarily addressed the non-delegation argument. Although the district court was somewhat sympathetic to Land's predicament, it noted that his relatively simple declaratory judgment action had "led [him] down a tortuous legal path." (R. 117.) The court rejected Land's non-delegation argument, finding that "ERISA does not delegate legislative power to employee benefit plans at all." (R. 119.) The court also agreed with the Fund that Land had failed to allege any action taken under color of state law and noted that Land himself had acknowledged that his section 1983 claim had been brought in error. As for any claim under section 1981, the court could see no possible application of that statute to the facts alleged. 2 Yet the court denied the Fund's motion for Rule 11 sanctions, finding that Land's non-delegation argument was warranted by a good faith argument for the extension, modification, or reversal of existing law. 3

II. DISCUSSION
A.

Land appeals only from the dismissal of count II; he does not pursue his section 1983 claim here. We review the district court's decision to dismiss count II de novo. Pierce v. Village of Divernon, Illinois, 17 F.3d 1074, 1076 (7th Cir.1994). 4

Land's constitutional challenges are precipitated by ERISA's broad preemption clause, which states that the statute "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. Sec. 1144(a). The Supreme Court explained in FMC Corp. v. Holliday, 498 U.S. 52, 58, 111 S.Ct. 403, 407, 112 L.Ed.2d 356 (1990), that this clause "is conspicuous for its breadth" and that it "establishes as an area of exclusive federal concern the subject of every state law that 'relate[s] to' an employee benefit plan governed by ERISA." See also Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138, 111 S.Ct. 478, 482, 112 L.Ed.2d 474 (1990); Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739, 105 S.Ct. 2380, 2389, 85 L.Ed.2d 728 (1985). 5 The Court held in Holliday that by virtue of section 1144, ERISA preempted a state statute that would have nullified a plan's right to subrogation or reimbursement. 498 U.S. at 65, 111 S.Ct. at 411. 6 Holliday would therefore require that we reject any argument that Illinois law should apply here to reduce the amount owed the Fund (see also Cutting v. Jerome Foods, Inc., 993 F.2d 1293, 1296 (7th Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 308, 126 L.Ed.2d 255 (1993)), and Land does not advance such a claim. He instead takes a more creative approach, contending that ERISA, as applied in Holliday and therefore to the current plan, is unconstitutional because it permits private parties to formulate welfare-benefit plans that abrogate principles of state law. Land maintains that because the Secretary of Labor has failed to issue any regulations governing the content of welfare-benefit plans, the substance of those plans is left entirely to the discretion of plan administrators. This, according to Land, results in an unconstitutional delegation of congressional authority to private parties.

The non-delegation doctrine Land invokes is primarily derived from a series of Supreme Court decisions that consider whether Congress unconstitutionally delegated its legislative authority to an agency of the Executive Branch. See, e.g., Skinner v. Mid-America Pipeline Co., 490 U.S. 212, 109 S.Ct. 1726, 104 L.Ed.2d 250 (1989) (delegation of authority to Secretary of Transportation to develop a system of user fees to cover the cost of administering federal pipeline safety programs); Mistretta v. United States, 488 U.S. 361, 109 S.Ct. 647, 102 L.Ed.2d 714 (1989) (delegation of power to promulgate sentencing guidelines to independent Sentencing Commission); Lichter v. United States, 334 U.S. 742, 68 S.Ct. 1294, 92 L.Ed. 1694 (1948) (delegation of authority to War Department to recover excessive profits on military contracts); American Power & Light Co. v. SEC, 329 U.S. 90, 67 S.Ct. 133, 91 L.Ed. 103 (1946) (delegation of authority to Securities and Exchange Commission to prevent unfair or inequitable distribution of shareholder voting power); FPC v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944) (delegation to Federal Power Commission of authority to determine just and reasonable rates); National Broadcasting Co. v. United States, 319 U.S. 190, 63 S.Ct. 997, 87 L.Ed. 1344 (1943) (delegation to the Federal Communications Commission of the power to regulate broadcast licensing). The principal concern of these cases is with the separation of legislative and executive powers, and the Court has asked in each instance whether Congress has provided "an administrative agency with standards guiding its actions such that a court could 'ascertain whether the will of Congress has been obeyed.' " Skinner, ...

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