Board of Trustees of Operating Engineers Local 825 Fund Service Facilities v. First Indem. of America Ins. Co.

• Decision Date: 20 February 1996
• Citation: 671 A.2d 596,287 N.J.Super. 498
• Parties: BOARD OF TRUSTEES OF OPERATING ENGINEERS LOCAL 825 FUND SERVICE FACILITIES, Plaintiff-Appellant, v. FIRST INDEMNITY OF AMERICA INSURANCE COMPANY, Defendant-Respondent, and L.B.S. Construction Co., Inc., Defendants. BOARD OF TRUSTEES OF OPERATING ENGINEERS LOCAL 825 FUND SERVICE FACILITIES, Plaintiff-Appellant, v. INTERNATIONAL FIDELITY INSURANCE COMPANY, a corporation, Defendant-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 498

287 N.J.Super. 498

671 A.2d 596

BOARD OF TRUSTEES OF OPERATING ENGINEERS LOCAL 825 FUND

SERVICE FACILITIES, Plaintiff-Appellant, v. FIRST INDEMNITY OF AMERICA INSURANCE COMPANY, Defendant-Respondent, and L.B.S. Construction Co., Inc., Defendants.

BOARD OF TRUSTEES OF OPERATING ENGINEERS LOCAL 825 FUND

SERVICE FACILITIES, Plaintiff-Appellant, v. INTERNATIONAL FIDELITY INSURANCE COMPANY, a corporation,

Defendant-Respondent.

Superior Court of New Jersey Appellate Division.

Argued Jan. 23, 1996.

Decided Feb. 20, 1996.

On appeal from the Superior Court of New Jersey, Law Division, Essex County.

Albert G. Kroll, West Orange, for appellant Board of Trustees of Operating Engineers Local 825 Fund Service Facilities (A-368-94T2) (Kroll & Gaechter, attorneys; Mr. Kroll, on the brief).

Joseph C. Glavin, Jr., Parsippany, for respondent First Indemnity of America Insurance Company (Mr. Glavin and Laurie Rush-Masuret, West Orange, on the brief).

James R. Zazzali, Newark, amicus curiae, for New Jersey State Carpenter Benefit Funds, Carpenters Local # 6 Benefit Funds, the Laborers Local Nos. 472 and 172 Welfare and Pension Funds, The Teamsters Local 408 Welfare and Pension Funds, and the Laborers Local Nos. 72, 156, 569 and 711 Welfare and Pension Funds (Zazzali, Zazzali, Fagella & Nowak, attorneys Mr. Zazzali and Kenneth I. Nowak, of counsel and on the brief and Edward H. O'Hare, on the brief).

N. Janine Dickey, Martinsville, for Board of Trustees of Operating Engineers Local 825 Fund Service Facilities (A-5077-94T5) (Ms. Dickey, on the brief).

Thomas J. Demski, Newark, for respondent International Fidelity Insurance Company (Sills, Cummis, Zuckerman, Radin, Tischman, Epstein & Gross, attorneys; Mr. Demski, of counsel, Mark E. Duckstein, of counsel and on the brief).

Before Judges DREIER, ARNOLD M. STEIN and CUFF.

The opinion of the court was delivered by

DREIER, P.J.A.D.

Plaintiff appeals from summary judgments in two cases that we consolidate for the purpose of this opinion.

The cases before us present a novel issue for the New Jersey courts: whether the preemption clauses of the Employment Retirement Income Security Act (ERISA), 29 U.S.C.A. §§ 1001-1461 foreclose a Law Division action to recover unpaid pension benefits through surety bonds issued under the New Jersey Public Works Bond Act, N.J.S.A. 2A:44-143 to 147.

The plaintiff in both cases is the Board of Trustees of Operating Engineers Local 825 Fund Services Facilities, a union benefits fund. The Union had negotiated collective bargaining agreements with two separate construction contractors requiring each contractor to make contributions on behalf of their union employees to various benefits funds administered by plaintiff. The contractors had been hired for various public-works projects and thus had executed the payment and performance bonds required by the Public Works Bond Act.

When each contractor failed to make all the contribution payments mandated by the collective bargaining agreement, plaintiff in separate actions sued the sureties that had provided the bonds: First Indemnity of America Insurance Company, (First Indemnity) ^{1 1} and International Fidelity Insurance Company (International). The amounts unpaid were estimated at $73,624.94 and $95,612.53, respectively. In each case, the trial court granted the surety's motion for summary judgment on the ground that the suit was preempted by the ERISA clause providing that the Act supersedes all state laws that "relate to" an ERISA plan. Since ERISA provides no mechanism for recovery against a surety, the courts' rulings left plaintiff with no remedy to recover the unpaid benefits.

ERISA is a comprehensive scheme of federal regulation of employee benefit plans, 29 U.S.C.A. §§ 1001-1461; it includes civil enforcement remedies against the employer. 29 U.S.C.A. § 1132(a). In recognition of Congress's intent that qualifying benefit plans be under uniform federal control, ERISA contains three provisions governing preemption of state laws that might impinge upon this federal scheme. First, the main preemption clause provides that ERISA's provisions "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan " covered by ERISA. 29 U.S.C.A. § 1144(a) (emphasis added). Second, in the so-called "saving clause," the act creates an exception for certain state laws: "nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities." 29 U.S.C.A. § 1144(b)(2)(A). Plaintiff argues that, even if the main preemption clause applies, plaintiff's claim is permitted under this "saving clause." We need not reach this argument as we hold that ERISA does not preempt this State action. The third provision, 29 U.S.C.A. § 1144(b)(2)(B), is not implicated in these appeals.

The New Jersey Public Works Bond Act sets forth the substantive requirements for bonding of contractors hired to perform work on public projects and also prescribes the procedural mechanisms for enforcing such bonds. The necessity for a bond is created by N.J.S.A. 2A:44-143a, reading in part as follows:

a. When public buildings or other public works or improvements are about to be constructed, erected, altered or repaired under contract, at the expense of the State or any county, municipality or school district thereof, the board, officer or agent contracting on behalf of the State, county, municipality or school district, shall require the usual bond, as provided for by law, with good and sufficient sureties, with an additional obligation for the payment by the contractor, and by all subcontractors, for all labor performed or materials, provisions, provender or other supplies, teams, fuels, oils, implements or machinery used or consumed in, upon, for or about the construction, erection, alteration or repair of such buildings, works or improvements.

[Emphasis added.]

The trial judges reasoned that the Bond Act was "related to" ERISA because, under their views, it created a new substantive cause of action against sureties which did not exist under ERISA. ² In considering the case against First Indemnity, the judge relied on Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98, 103 S.Ct. 2890, 2899, 77 L.Ed.2d 490, 501 (1983) for his threshold assumption that a state law need not be specifically designed to affect ERISA plans to be preempted. However, the judge's ultimate conclusion then apparently rested on two cases involving state statutes which, unlike the statute before us, specifically targeted employee benefit plans: Bricklayers Local 33 v. America's Marble Source, 950 F.2d 114, 117 (3d Cir.1991) (holding that ERISA preempted New Jersey's Fringe Benefit Act which expressly authorized actions to recover unpaid benefit contributions and thereby created substantive rights not otherwise conferred by ERISA), and Minnesota Chamber of Commerce & Industry v. Hatch, 672 F.Supp. 393, 395 (D.Minn.1987) (Hatch ) (finding preemption where statute requiring employers to post surety bonds against payment of employee health benefits sought to exercise state control over the plans' administration, an exclusively federal concern under ERISA).

On the basis of these decisions, the judge concluded that a law may also be preempted if it regulates matters dealing with the administration of ERISA plans, such as disclosure, funding, reporting, vesting, and enforcement, matters that are regulated by ERISA itself. See 29 U.S.C.A. §§ 1021-1031, 1051-1061, 1081-1086, 1131-1145. In the judge's view, the New Jersey Public Works Bond Act encroached on the funding and enforcement of a plan covered by ERISA and was therefore preempted.

At the time both judges delivered their opinions on July 27, 1994 and on May 18, 1995, their conclusions appeared to be amply supported by the majority of cases considering whether ERISA preempts efforts to collect unpaid benefit contributions from a guarantor or surety or through a mechanic's lien, under state statute or common law provisions. Accord Williams v. Ashland Eng'g Co., 45 F.3d 588, 593-594 (1st Cir.) cert. denied, --- U.S. ----, 116 S.Ct. 51, 133 L.Ed.2d 16 (1995); Trustees of Elec. Workers Health and Welfare Trust v. Marjo Corp., 988 F.2d 865, 868 (9th Cir.1993) (Marjo ); Bricklayers, supra, 950 F.2d at 118; M.C. Sturgis v. Herman Miller, Inc., 943 F.2d 1127, 1130 (9th Cir.1991); Iron Workers Mid-South Pension Fund v. Terotechnology Corp., 891 F.2d 548, 556 (5th Cir.1990); Hatch, supra, 672 F.Supp. at 398; Puget Sound Elec. Workers Health and Welfare Trust Fund v. Merit Co., 123 Wash.2d 565, 870 P.2d 960, 964 (1994) (en banc); Carpenters S. California Admin. Corp. v. El Capitan Dev. Co., 53 Cal.3d 1041, 282 Cal.Rptr. 277, 286, 811 P.2d 296, 305 cert. denied, 502 U.S. 963, 112 S.Ct. 430, 116 L.Ed.2d 450 (1991) (El Capitan ); Prestridge v. Shinault, 552 So.2d 643, 648 (La.Ct.App.1989). Apparently, only one published case, not initially cited by the parties, directly rejected the preemption argument. Seaboard Sur. Co. v. Indiana State Dist. Council of Laborers and Hod Carriers Health and Welfare Fund, 645 N.E.2d 1121, 1127-28 (Ind.Ct.App.1995) (no preemption of general state bonding statute).

Despite the apparently overwhelming weight of authority, closer examination reveals that each of the earlier cases finding preemption including Bricklayers and Hatch, was factually distinguishable from the issue at hand. Moreover, the "no preemption" finding in Seaboard, the case more directly on point, is supported by two subsequent cases from the Second Circuit, Bleiler v. Cristwood Construction, Inc., 72 F.3d 13, 16 (2d Cir.1995) and Greenblatt v. Delta Plumbing & Heating Corp., 68 F.3d 561, 576 (2d Cir.1995), and the reasoning in a subsequent, distinguishable, but factually similar decision from the Third Circuit, Ragan v. Tri-County Excavating, Inc., 62 F.3d 501, 510-513 (3d Cir.1995).

The...