Airparts Co. v. Custom Ben. Services of Austin

• Decision Date: 29 July 1993
• Docket Number: No. 92-1424-PFK.,92-1424-PFK.
• Citation: 828 F. Supp. 870
• Parties: AIRPARTS COMPANY, INC., a Kansas Corporation; and Marta E. Maxwell and Terry A. Gardner, Each In Their Capacity as Co-Trustees of the Airparts Company, Inc. Defined Benefit Pension Plan and Trust, Plaintiffs, v. CUSTOM BENEFIT SERVICES OF AUSTIN, INC., d/b/a First Actuarial Corporation, a Texas Corporation, Defendant.
• Court: U.S. District Court — District of Kansas

828 F. Supp. 870

AIRPARTS COMPANY, INC., a Kansas Corporation; and Marta E. Maxwell and Terry A. Gardner, Each In Their Capacity as Co-Trustees of the Airparts Company, Inc. Defined Benefit Pension Plan and Trust, Plaintiffs, v. CUSTOM BENEFIT SERVICES OF AUSTIN, INC., d/b/a First Actuarial Corporation, a Texas Corporation, Defendant.

No. 92-1424-PFK.

United States District Court, D. Kansas.

July 14, 1993.

Order Denying Reconsideration July 29, 1993.

COPYRIGHT MATERIAL OMITTED

Paul Arabia, Wichita, KS, for plaintiffs.

Ann T. Rider, of Martin, Pringle, Oliver, Wallace & Swartz, Wichita, KS, Joseph H. Bocock, of McAfee & Taft, Oklahoma City, OK, for defendant.

MEMORANDUM AND ORDER

PATRICK F. KELLY, Chief Judge.

Plaintiffs allege three claims based on negligence, indemnity and common-law fraud against defendant First Actuarial Corporation. Plaintiffs, who are comprised of both the Airparts Company and the trustees of the company's pension plan, contend that defendant failed to properly administer Airparts Company's defined benefit pension plan and trust. Arguing that provisions of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., preempt plaintiffs' claims, defendant moved to dismiss the suit.

In response, plaintiffs make three arguments against preemption: first, that their claims do not relate to the pension plan at issue; second, that even if the claims do relate to the plan, ERISA only preempts claims when the parties to the lawsuit are participants in or beneficiaries of the pension plan; and third, that ERISA does not preempt claims against nonfiduciaries. This case raises issues of first impression before this court that have yet to be decided by the Tenth Circuit.

Fed.R.Civ.P. 12(b)(6) permits a federal court to dismiss a complaint if it fails to state a claim upon which relief could be granted. Under Fed.R.Civ.P. 12(b)(6), a district court must evaluate the proffered legal theory on the assumption that the factual allegations, however fantastic, are true. Neitzke v. Williams, 490 U.S. 319, 326-27, 109 S.Ct. 1827, 1832-33, 104 L.Ed.2d 338 (1989).

Airparts is a Kansas corporation with its principal place of business in Wichita, Kansas. Plaintiff trustees are residents of Kansas. First Actuarial Corporation is a Texas corporation, transacting business under the laws of the states of Texas and Oklahoma, with its principal place of business in Oklahoma City, Oklahoma.

The question before the court is whether ERISA preempts plaintiffs' state law claims of negligence, indemnity, and common-law fraud. ERISA § 514(a), 29 U.S.C. § 1144(a), states:

Except as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws¹ insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title.

This preemption clause's expansive language was designed to establish pension plan regulation as an exclusively federal concern. Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 137, 111 S.Ct. 478, 482, 112 L.Ed.2d 474, 483 (1990).

The key to ERISA preemption is found in the words "relate to". Those words are used in a broad sense to make the clause applicable to state laws that more than simply relate to specific subjects covered by ERISA. Id. A law "relates to" an employee benefit plan if it has a connection with or reference to the plan. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 2899-2900, 77 L.Ed.2d 490 (1983). Thus, a state law may "relate to" an ERISA benefit plan and be preempted even if the law is not specifically designed to affect the plan or if the effect is only indirect. McClendon, 498 U.S. 133, 137, 111 S.Ct. 478, 482, 112 L.Ed.2d 474, 483 (1990); Monarch Cement Co. v. Lone Star Indus., Inc., 982 F.2d 1448, 1452 (10th Cir.1992).

The purpose of ERISA preemption is twofold. First, preemption protects the interests of employees and their beneficiaries in employee benefit plans. Second, preemption ensures that plans and their sponsors are subject to a uniform body of law by minimizing the burden of complying with conflicts between the state and the federal government. Monarch, 982 F.2d at 1453.

The Tenth Circuit has held that common-law tort and breach of contract claims brought by employees are preempted by ERISA "if the factual basis of the cause of action involves an employee benefit plan." Settles v. Golden Rule Ins. Co., 927 F.2d 505, 509 (10th Cir.1991). But ERISA does not preempt claims that are only tangentially involved with a benefit plan. Id.

Generally, laws that affect the structure, the administration, or the type of benefits provided by an ERISA plan have been ruled preempted. Laws that have not been preempted are usually those having only some economic impact on the plan or those affecting the plan in too tenuous, remote, or peripheral a manner. Hospice of Metro Denver v. Group Health Ins., 944 F.2d 752, 754 (10th Cir.1991). Thus, a state law claim affecting the relations among the principal ERISA entities, the employer, the plan, the plan fiduciaries, and the beneficiaries would be preempted by ERISA. Id. at 756. ERISA preemption is designed to ensure that plans and their sponsors are subjected to a uniform body of benefit law, thereby preventing inefficiencies working to the detriment of plan beneficiaries. St. Francis Regional Medical Ctr. v. Blue Cross Blue Shield, 810 F.Supp. 1209, 1213 (D.Kan.1992)

The factual basis for plaintiffs' negligence claim involves three separate issues. First, plaintiffs argue that defendant failed to give timely notice. Defendant held itself out to be qualified to give expert pension plan advice. Plaintiffs argue that defendant failed to give notice to plaintiffs concerning the adverse effects of the Omnibus Budget Reconciliation Act of 1987 on the pension plan. According to plaintiffs, this failure to advise plaintiffs resulted in damages in the amount of $28,530.00 in excise taxes.

Plaintiffs also argue that defendant negligently advised plaintiffs to amend the pension plan, increasing the benefit formula of 43% of average monthly compensation to 59.3% as a means of correcting the overfunded problem of the plan. The plan was amended on September 9, 1990. Plaintiffs allege damages due to the costs of sustaining the amended plan.

Finally, plaintiffs allege negligence in the computation of benefits under the plan. Plaintiffs claim that the computation for three terminated employees was done with an inflated average monthly compensation and the errors for a fourth employee arose from an inflated benefit formula as well as incorrectly calculated retirement dates.

The state law of negligence alleged by plaintiffs clearly relates to the pension plan. The law of negligence in this case directly concerns the administration of the plan by the defendant and defendant's actions regarding the calculation and distribution of benefits under the plan. Although the claim is not against the fiduciary of the plan, the alleged claim still affects the relationship between the trustees, the pension plan sponsor, the administrator, and the beneficiaries. The factual basis of the state law claim involves the employee benefit plan, and the claim obviously affects the relationship of the parties under the benefit plan. Thus, under the rationale of Settles, ERISA preempts the plaintiffs' state tort claim of negligence.

Plaintiffs' second cause of action is one for indemnity. Plaintiffs allege that defendant's mismanagement of the pension fund resulted directly in the trustees, and indirectly the employer Airparts Company, having to pay excessive pension benefits. The alleged negligence of defendant also resulted in plaintiffs having to pay excise taxes to the Internal Revenue Service due to the overfunded condition of the benefit plan.

As with the negligence cause of action, the claim for indemnity is based on facts arising out of the administration of the benefits plan. The claim is not tangentially associated with the plan, but instead is directly a result of the alleged negligence in administering the plan. The law of indemnity affects the relations among the principal ERISA entities and therefore has a connection with the plan. Thus, for the same reasons, this court finds that the state law indemnity claim relates to the pension plan.

Plaintiffs' third complaint alleges common-law fraud. Plaintiffs contend the defendant falsely represented that the amendment to the pension plan would effectuate the intended purpose of the plan. Also, plaintiffs allege that defendant knew that the changed plan would increase the costs of maintaining the pension benefits as well as increase excise taxes paid by plaintiffs.

This claim arises from the same factual basis as did the other two allegations and therefore involves the employee benefit plan. Plaintiffs' fraud claim relies upon facts relating to the administration of the pension plan. Furthermore, this state law claim would provide a remedy for misconduct growing out of the administration of the plan, a situation found to epitomize the need for ERISA preemption. National Elevator Industry v. Calhoon, 957 F.2d 1555, 1558-59 (10th Cir.), cert. denied, ___ U.S. ___, 113 S.Ct. 406, 121 L.Ed.2d 331 (1992); St. Francis, 810 F.Supp. at 1213. Thus, relying upon the Tenth Circuit's reasoning in Settles and Calhoon, this court finds that the state fraud claim also relates to the pension plan for purposes of preemption.

Even though these state law claims relate to the pension plan, the preemption analysis cannot end there. A question has been raised concerning the respective roles of the parties to this suit and whether preemption applies in this case.

Plaintiffs raise two arguments which might prevent preemption: (1) ERISA only preempts claims when the parties to the lawsuit are...