Albradco, Inc. v. Bevona

• Decision Date: 21 December 1992
• Docket Number: No. 373,D,AFL-CIO,B-32J,B-J,373
• Citation: 982 F.2d 82
• Parties: 142 L.R.R.M. (BNA) 2282, 124 Lab.Cas. P 10,498, 16 Employee Benefits Cas. 1279 ALBRADCO, INC. and Elias Strum, Appellants, v. Gus BEVONA, as President of 32Service Employees International Union,, and as Trustee of the Building Service 32Health Fund and the Building Service 32 Pension Fund; 32Service Employees International Union,; Building Service 32Health Fund; Building Service 32Pension Fund, Appellees. ocket 92-7616.
• Court: U.S. Court of Appeals — Second Circuit

Page 82

982 F.2d 82

142 L.R.R.M. (BNA) 2282, 124 Lab.Cas. P 10,498,

16 Employee Benefits Cas. 1279

ALBRADCO, INC. and Elias Strum, Appellants, v. Gus BEVONA, as President of 32B-32J Service Employees International Union, AFL-CIO, and as Trustee of the Building Service 32B-J Health Fund and the Building Service 32B-J Pension Fund; 32B-32J Service Employees International Union, AFL-CIO; Building Service 32B-J Health Fund Building Service 32B-J Pension Fund, Appellees.

No. 373, Docket 92-7616.

United States Court of Appeals Second Circuit.

Argued Nov. 4, 1992.

Decided Dec. 21, 1992.

Steven Mallis, New York City (Nancy Sills, Barbara J. Romaine, and Graubard Mollen Horowitz Pomeranz & Shapiro, on the brief), for appellants.

Joseph Ferraro, New York City (Barry N. Saltzman, Eve I. Klein, Joshua A. Adler, and Shea & Gould, on the brief), for appellees.

Before: TIMBERS, VAN GRAAFEILAND, and McLAUGHLIN, Circuit Judges.

TIMBERS, Circuit Judge:

Albradco, Inc. and Elias Strum appeal from a judgment entered in the Southern District of New York, Peter K. Leisure, District Judge, 788 F.Supp. 786, dismissing their action for declaratory judgment. The court held that asserting a defense which claims that the Employee Retirement Income Security Act of 1974 (ERISA) preempts a state court action is insufficient to create subject matter jurisdiction in a declaratory judgment action in which the declaratory judgment plaintiff is not an enumerated plaintiff under ERISA § 502(a), 29 U.S.C. § 1132(a) (1988). The court further held that the Labor Management Relations Act (LMRA) does not preempt N.Y.B.C.L. § 630.

On appeal, appellants contend that the district court misconstrued applicable Supreme Court authority and the federal nature of their claim; erred in dismissing their claim for lack of subject matter jurisdiction; and erred in determining that LMRA § 301(a) did not preempt N.Y.B.C.L. § 630.

We reject all of appellants' claims on appeal. We affirm the judgment dismissing the action for lack of subject matter jurisdiction.

I.

We summarize only those facts and prior proceedings believed necessary to an understanding of the issues raised on appeal.

Appellant Albradco, Inc. (Albradco) is a New York corporation and the sole shareholder of Bradley Cleaning Contractors, Inc. (Bradley), a New York corporation which has filed for protection under Chapter 7 of the Bankruptcy Code, 11 U.S.C. § 701 et seq. (1988). Appellant Strum is a principal shareholder of Albradco and a former president of Bradley. At the times relevant to this action, Bradley was a party to two collective bargaining agreements (CBAs) with appellee Local 32B-32J Service Employees International Union (the Union). The CBAs set forth wage rates and required Bradley to make contributions to the funds which provided pension and health benefits and are governed by ERISA § 514(a), 29 U.S.C. § 1144(a) (1988).

In 1982, a dispute arose between Bradley and the Union over Bradley's operation of two other companies, Electric Savings Corp. (Electric) and Commerce Office Cleaning Corp. (Commerce), which did not contribute to the funds. Two arbitration proceedings, one in 1984 and one in 1987, ensued. It was determined that these companies actually were "alter egos" of Bradley and as such also were required to make contributions. The 1984 arbitration proceeding directed Bradley to pay $1,227,134 in wages and $549,766 in pension and health benefits to employees of Electric and Commerce. The 1987 proceeding directed Bradley to pay an additional $1,267,246.15 in wages and $379,401.51 in fund contributions to the Union. The awards were confirmed by orders entered May 2, 1984 and April 22, 1988 in the Southern District of New York, Leonard B. Sand, District Judge.

These awards forced Bradley on May 16, 1984 to file for bankruptcy under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq. (1988). On December 2, 1986, the bankruptcy case was converted to a liquidation under Chapter 7 of the Bankruptcy Code. Appellants were not parties to either arbitration proceeding.

In order to recover the arbitration awards, appellee Gus Bevona, president of the Union, in January 1986 commenced an action in the New York Supreme Court, New York County, against appellants Albradco and Strum as the two largest shareholders of Bradley. This action was brought pursuant to N.Y.B.C.L. § 630, which provides that the ten largest shareholders of close corporations "shall jointly and severally be personally liable for all debts, wages or salaries due and owing" to employees. N.Y.B.C.L. § 630(a). This includes "employer contributions ... of insurance or welfare benefits [and] employer contributions to pension or annuity funds." N.Y.B.C.L. § 630(b). Albradco and Strum contested the state court action on both procedural and substantive grounds, including failure to state a claim and failure to join necessary parties. Both the New York Supreme Court and the Appellate Division found these challenges to be without merit.

After exhausting their state court remedies, Albradco and Strum, in December 1990, commenced the instant declaratory judgment action in the federal court seeking a declaration that the proceedings in the state court action under N.Y.B.C.L. § 630 were preempted by ERISA. Both parties, after commencement of the federal court action, cross-moved for summary judgment on the preemption issue. Appellants then amended their complaint to include the additional allegation that the Union's claims under § 630 also are preempted by LMRA § 301, 29 U.S.C. § 185(a) (1988).

In the proceeding below, Judge Leisure dismissed the complaints of both Albradco and Strum. He concluded that the court did not have subject matter jurisdiction over either claim. We agree.

Judge Leisure held that, although the ERISA preemption claim might have merit if appellants had pursued a different procedural course, such as removal for jurisdictional purposes, the existence of an ERISA preemption defense is not enough to convert an action into a federal question declaratory judgment action. Under the complete preemption doctrine as applied to ERISA, there will be federal jurisdiction in a declaratory judgment action only if ERISA preempts state law and the declaratory judgment plaintiff has a right of action within the scope of the civil enforcement provisions of ERISA § 502(a). On appeal, appellants claim that the second requirement misconstrues applicable Supreme Court and Second Circuit authority. We disagree.

Judge Leisure further held that the court did not have subject matter jurisdiction over the LMRA claim, since such a claim must be based on rights founded in collective bargaining agreements. In the instant action, however, the CBAs already have been arbitrated. The state court action was commenced under N.Y.B.C.L. § 630 for payments already adjudged to be due and owing. On appeal, appellants contend that, since the CBAs would require further analysis in the state court action and the LMRA completely preempts state law, the district court erred in dismissing this claim. We disagree.

II.

(A) Subject Matter Jurisdiction over ERISA Preemption Claim

For a federal district court to have original jurisdiction in a non-diversity case, there must be a federal question "arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331 (1988 & Supp.1992). We recently affirmed the long standing principle that "the Declaratory Judgment Act, 28 U.S.C. § 2201, does not expand the jurisdiction of the federal courts." Cable Television Ass'n of N.Y., Inc. v. Finneran, 954 F.2d 91, 94 (2 Cir.1992); see also Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671, 70 S.Ct. 876, 878-79, 94 L.Ed. 1194 (1950). A declaratory judgment plaintiff must have an independent basis for federal jurisdiction.

Appellants' brief cites substantial authority for the proposition that ERISA preempts state law legislation that regulates or even relates to employee benefit plans. Indeed, Supreme Court precedent may well have established that ERISA preemption is broad and the intent of the legislation was to create a statute which gives exclusive federal authority to the regulation of employee benefit plans. Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990). This issue, however, cannot be determined in the instant case. Instead, we are limited on appeal to determining whether the federal court has subject matter jurisdiction over appellants' claim for a declaratory judgment. Although the preemption claim may be strong, in order to assert a claim in the federal court, appellants first must establish subject matter jurisdiction. Here, the court properly held that appellants did not meet this threshold requirement.

Relying on Franchise Tax Board v. Construction Laborers Vacation Trust for Southern California, 463 U.S. 1 (1983), appellants urge us to examine the declaratory defendants' claims in determining whether the declaratory judgment action presents a federal question. This is, of course, the procedure required by application of the well-pleaded complaint rule to declaratory judgment actions. See Cable Television Ass'n v. Finneran, 954 F.2d 91, 94 (2d Cir.1992). This general rule is of no avail to appellants, however, because we read Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987), to permit ERISA suits, including declaratory judgment actions, only by plaintiffs specified in ERISA § 502(a), and the appellants do not qualify.

More importantly, however, Franchise Tax Board did not involve the interface of the well-pleaded complaint rule and the complete preemption exception thereto, and, therefore, is not controlling. The Supreme Court first applied the complete preemption doctrine to ERISA in Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987); see also Avco Corp. v. Aero Lodge 735, 390 U.S. 557 (1968). There, the Supreme Court stated a corollary to the...