System 99 Minority Shareholders v. Robison
| Citation | 953 F.2d 1388 |
| Decision Date | 04 February 1992 |
| Docket Number | No. 90-15705,90-15705 |
| Parties | NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel. SYSTEM 99 MINORITY SHAREHOLDERS, Plaintiff-Appellant, v. Alan W. ROBISON, et al.; Bernie G. Head; Bradley Lusk; Golden Sanwa Bank, Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Before D.W. NELSON, CYNTHIA HOLCOMB HALL and FERNANDEZ, Circuit Judges.
System 99 Minority Shareholders ("Minority Shareholders") is an unincorporated association comprised of former employees of System 99, a now-defunct California corporation that had been in the business of freight transportation. Minority Shareholders brought this action alleging improprieties in the formation and administration of an employee stock ownership plan ("ESOP") in System 99. Minority Shareholders brought suit against three groups of defendants: (1) former directors and officers of System 99 ("individual defendants"); (2) the trustee of the ESOP, Sanwa Bank California (formerly Golden Sanwa Bank) ("Sanwa"); and (3) the company which allegedly took possession of System 99's assets in a de facto merger, Viking Freight System, Inc. ("Viking"). The district court held that Minority Shareholders' claims against the individual defendants and Viking were barred by the California statute of limitations, and that plaintiffs' claims against Sanwa were barred by the statute of limitations of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 301-309, 441, 1001-1461. We reverse and remand.
The employees of System 99 were induced to participate in the ESOP in order to help save System 99 from financial collapse. The union representing System 99's employees agreed to modify the collective bargaining agreement so as to divert 10% of the employees' income into the ESOP. Later, that amount was increased to 15%. Despite this arrangement, System 99 ceased doing business and filed for bankruptcy in 1985.
On August 18, 1989, Minority Shareholders filed a complaint in state court alleging fraud, breach of fiduciary duty, usurpation of a corporate opportunity, coercion to induce participation in the ESOP, and civil conspiracy. Minority Shareholders alleged that the individual defendants had conspired to induce Minority Shareholders to purchase shares of stock in System 99 and thereafter plunder System 99 by selling its assets to Viking. Minority Shareholders also alleged that Sanwa, as trustee of the ESOP, breached its fiduciary duty to plaintiffs by failing to inform Minority Shareholders that they were paying $21 million for a 40% interest in a corporation whose assets amounted to a mere $4 million. Minority Shareholders further alleged that Sanwa breached its fiduciary duty by failing to issue stock certificates to Minority Shareholders as their contributions to the ESOP were received. Finally, Minority Shareholders alleged that "defendants" had conspired to defraud Minority Shareholders. Minority Shareholders alleged that it
On October 23, 1989, Sanwa and some of the individual defendants removed the action to federal district court on the ground that Minority Shareholders' claims were preempted by ERISA. On January 8, 1990, the district court held that it had jurisdiction because at least one of Minority Shareholders' claims was preempted by ERISA and the remaining claims were therefore subject to the court's pendent jurisdiction. On January 18, 1990, the district court dismissed all of Minority Shareholders' claims against Viking and the individual defendants on the ground that these claims were founded in state law and were barred by California's three-year statute of limitations. 1 On May 3, 1990, the district court dismissed Minority Shareholders' claims against Sanwa on the ground that those claims were barred by ERISA's statute of limitations.
We first consider Minority Shareholders' claim that the district court should have granted its motion to remand the case to state court. Removal is a question of federal subject matter jurisdiction, reviewed de novo by this court. Nishimoto v. Federman-Bachrach & Assocs., 903 F.2d 709, 712 (9th Cir.1990).
Sanwa argues that the panel should review removal in accord with Sorosky v. Burroughs Corp., 826 F.2d 794, 798 (9th Cir.1987). In Sorosky, we held that " '[w]here after removal a case is tried on the merits without objection and the federal court enters judgment, the issue in subsequent proceedings on appeal is not whether the case was properly removed, but whether the federal district court would have had original jurisdiction of the case had it been filed in that court.' " Id. at 798 (quoting Grubbs v. General Elec. Credit Corp., 405 U.S. 699 (1972)); accord Nishimoto, 903 F.2d at 712-13. We need not consider Sanwa's argument to decide the issues before us, however, because Minority Shareholders' arguments regarding the propriety of removal jurisdiction in this case focus strictly on the propriety of subject matter jurisdiction. While technicalities of removal procedure can be waived by failure to file an interlocutory appeal, the propriety of subject matter jurisdiction can never, of course, be waived. 1A James Wm. Moore & Brett A. Ringle, Moore's Federal Practice p 0.157[11.-4], at 172-80 (2d ed.1991) (). Since our analysis of the jurisdiction question would be unchanged by deciding the waiver issue, we will not do so.
An ERISA preemption defense can provide a basis for federal subject matter jurisdiction when the state law claims are within the civil enforcement provision of ERISA § 502(a), 29 U.S.C. § 1132(a). Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 66 (1987); Felton v. Unisource Corp., 940 F.2d 503, 507 (9th Cir.1991). Minority Shareholders is alleging breaches of fiduciary duties by the individual defendants and Sanwa subjecting the defendants to liability under ERISA § 409(a), 29 U.S.C. 1109(a). 2 See infra Section III(B) & (C) (). ERISA § 502(a)(2) provides that a participant or beneficiary may bring suit to enforce the provisions of section 409. Thus, under Taylor, Minority Shareholders' claims against the individual defendants and Sanwa provide a basis for federal subject matter jurisdiction and for removal. "[T]he pre-emptive effect of § 502(a) [is] so complete that an ERISA pre-emption defense provides a sufficient basis for removal of a cause of action to the federal forum notwithstanding the traditional limitation imposed by the 'well-pleaded complaint rule.' " Ingersoll-Rand Co. v. McClendon, 111 S.Ct. 478, 486 (1990). The district court's ruling that it had jurisdiction because the ERISA preemption defense should be treated as a federal question for purposes of the well-pleaded complaint rule was therefore correct.
Pendent jurisdiction extends to all claims arising out of a "common nucleus of operative fact" with a federal question. Republic of the Philippines v. Marcos, 862 F.2d 1355, 1359 (9th Cir.1988) (en banc) (citing United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966)), cert. denied, 490 U.S. 1035 (1989). The district court therefore properly exercised its jurisdiction over all of Minority Shareholders' claims against the individual defendants and Sanwa because ERISA's civil enforcement provision preempted at least of one of Minority Shareholders' claims against those parties.
The district court dismissed Minority Shareholders' claim against Viking on the ground that it was barred by the California statute of limitations. The district court correctly held that Minority Shareholders did not allege a violation of ERISA by Viking because Viking was not an ERISA fiduciary. It had no discretionary authority or control over the ESOP or its assets. See ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A) (). Even if Viking knowingly participated in or facilitated the fiduciaries' breach of their duty to the ESOP, section 409(a) does not provide a cause of action. Batchelor v. Oak Hill Medical Group, 870 F.2d 1446, 1448 (9th Cir.1989).
A suit by either Minority Shareholders or the ESOP plan itself could therefore be brought only under California law. Because there is no federal question in Minority Shareholders' suit against Viking, the district court did not have subject matter jurisdiction. See Finley v. United States, 490 U.S. 545, 549-56 (1989) (). "We have repeatedly held that parties may not be added to an action absent an independent jurisdictional base for inclusion and that pendent party jurisdiction will not substitute for complete diversity or a federal question." Safeco Ins. Co. of America v. Guyton, 692 F.2d 551, 555 (9th Cir.1982). Thus, the district court should have remanded this portion of Minority Shareholders' suit to state court because the district court lacked jurisdiction over the suit against Viking.
Having determined that the district court properly exercised jurisdiction over this case, we now consider whether the district court properly applied the correct statute of limitations to...
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