Commonwealth Edison Co. v. Vega

• Decision Date: 13 April 1999
• Docket Number: No. 98-2417,98-2417
• Citation: 174 F.3d 870
• Parties: 22 Employee Benefits Cas. 2794, Pens. Plan Guide (CCH) P 23,954 COMMONWEALTH EDISON COMPANY and Trustees of The Commonwealth Edison Service Annuity Fund, Plaintiffs-Appellees, v. Sarah D. VEGA, in her official capacity as Director, State of Illinois Department of Financial Institutions, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 870

174 F.3d 870

22 Employee Benefits Cas. 2794,

Pens. Plan Guide (CCH) P 23,954

COMMONWEALTH EDISON COMPANY and Trustees of The Commonwealth Edison Service Annuity Fund, Plaintiffs-Appellees, v. Sarah D. VEGA, in her official capacity as Director, State of Illinois Department of Financial Institutions Defendant-Appellant.

No. 98-2417.

United States Court of Appeals Seventh Circuit.

Argued Feb. 16, 1999.

Decided April 13, 1999.

Hugh C. Griffin, Laurence A. Hansen (argued), Lord, Bissell & Brook, Glenn D. Newman, Chicago, IL, for Plaintiffs-Appellees.

Jerald S. Post (argued), Office of the Attorney General, Civil Appeals Division, Chicago, IL, for Defendant-Appellant.

David J. Epstein, Boston, MA, Robert P. Krenkowitz, Tucson, AZ, for National Association of Unclaimed Property Administrators.

Gail A. Perry (argued), Department of Labor, Office of the Solicitor, Washington, DC, for Alexis M. Herman.

Before POSNER, Chief Judge, and FLAUM and ROVNER, Circuit Judges.

POSNER, Chief Judge.

Commonwealth Edison Company and its defined-benefit pension plan brought this suit under ERISA, 29 U.S.C. §§ 1001 et seq., against the administrator of the Illinois Uniform Disposition of Unclaimed Property Act, 765 ILCS 1025, seeking a declaration that ERISA preempts the Illinois statute to the extent that the statute regulates such plans. The district court agreed, precipitating this appeal by the state. A threshold question unremarked by the parties or the district judge concerns the state's Eleventh Amendment immunity to being sued in a federal court without its consent. A suit against a state officer in his or (in this case) her official capacity is deemed a suit against the state, e.g., Kentucky v. Graham, 473 U.S. 159, 169-70, 105 S.Ct. 3099, 87 L.Ed.2d 114 (1985); V-1 Oil Co. v. Utah State Dept. of Public Safety, 131 F.3d 1415, 1421 (10th Cir.1997), and a mere failure to raise an Eleventh Amendment defense in court is not treated as a waiver, e.g., Edelman v. Jordan, 415 U.S. 651, 677-78, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974); Estate of Porter by Nelson v. Illinois, 36 F.3d 684, 691 n. 3 (7th Cir.1994); V-1 Oil Co. v. Utah State Dept. of Public Safety, supra, 131 F.3d at 1419-20; Suarez Corporation Industries v. McGraw 125 F.3d 222, 227 (4th Cir.1997), even though the Supreme Court has now made clear that a violation of the Eleventh Amendment does not deprive the federal court of jurisdiction over the suit. Patsy v. Board of Regents, 457 U.S. 496, 515 n. 19, 102 S.Ct. 2557, 73 L.Ed.2d 172 (1982); Idaho v. Coeur d'Alene Tribe of Idaho, 521 U.S. 261, 267, 117 S.Ct. 2028, 138 L.Ed.2d 438 (1997). But the only relief sought by the plaintiffs in this case is an injunction against enforcing a state statute that they contend is unenforceable by virtue of the supremacy clause of the Constitution, and that is relief equally available, with no Eleventh Amendment hurdle to overcome, by a suit against the responsible official in her private capacity. See Idaho v. Coeur d'Alene Tribe of Idaho, supra, 521 U.S. at 269, for the general principle, and Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96 n. 14, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983), and Burgio & Campofelice, Inc. v. New York State Dept. of Labor, 107 F.3d 1000, 1006-07 (2d Cir.1997), for its application to ERISA. In consequence, federal suits against state officials for purely injunctive relief are treated in effect as suits against them in their personal capacity, lifting the Eleventh Amendment bar. Will v. Michigan Dept. of State Police, 491 U.S. 58, 71 n. 10, 109 S.Ct. 2304, 105 L.Ed.2d 45 (1989); Kentucky v. Graham, supra, 473 U.S. at 167 n. 14.

The Uniform Disposition of Unclaimed Property Act, in force in about a third of the states, requires anyone in possession of intangible property that is unclaimed by its owner for seven years (five under the Illinois version of the Act) to transfer the property to the custody of the state. A subsequent uniform law, the Uniform Unclaimed Property Act of 1981, is in force in most of the rest of the states; so far as relates to this case, the provisions of the two uniform laws are the same. These are not escheat statutes. The state does not acquire title to the property. It is merely a custodian. The owner can reclaim his property at any time. Prefatory Note to 1995 Act, 8B Uniform Laws Annot., 1998 Supp. 84. But not only does the state have the free use of the property unless and until the owner reclaims it; the state is not required to (and Illinois does not) pay any interest to a reclaiming owner. 765 ILCS § 1025/15; see also Uniform Unclaimed Property Act of 1981, § 21 (§ 11 of the 1995 revision of this Act). In effect, the property is an interest-free loan to the state--in perpetuity if the owner never shows up to claim it.

Illinois seeks to apply the Uniform Act to benefits payable under Com Ed's pension plan that are not claimed by a plan beneficiary within five years. When benefits are due to a participant in the plan, the plan writes a check to the participant. Until the participant deposits or cashes the check and the check is paid by the plan through the system for clearing bank transactions, the money due the participants remains in the plan's coffers. It is placed in a separate account as soon as the check is written, but if the check isn't cashed within a year the money is retransferred to the general account and is available to pay other participants. Com Ed does not and could not (without adverse tax consequences) impose a deadline on when the beneficiary may cash his check. See 26 C.F.R. § 1.411(a)-4(b)(6). It could be five, or ten, or even more than ten years after the check was written. All this time the plan will have the use of the money due the beneficiary. Were the plan to be terminated, the administrator would have a legal duty to search and make provision for missing beneficiaries. 29 U.S.C. §§ 1056(f), 1350. But until then, the plan's only duty of search is whatever is implicit in the fiduciary obligation that ERISA imposes on plans. 29 U.S.C. § 1104(a).

The Com Ed plan owes about $125,000 to beneficiaries who have not yet cashed or deposited their checks even though more than five years have passed since the checks were written. The state wants this money. The plan wants to retain it. Com Ed wants the plan to retain it too, for even though money in the plan cannot be kicked back to Com Ed unless and until the plan is terminated and is determined to be overfunded, 29 U.S.C. § 1344(d); Mead Corp. v. Tilley, 490 U.S. 714, 718, 109 S.Ct. 2156, 104 L.Ed.2d 796 (1989); Brillinger v. General Electric Co., 130 F.3d 61, 62 (2d Cir.1997), the more money there is in the plan, the less money Com Ed will be required to contribute to it to make sure that the plan has enough to meet its obligations. 26 U.S.C. §§ 412(a), (b)(3); Hughes Aircraft Co. v. Jacobson, --- U.S. ----, ----, 119 S.Ct. 755, 761, 142 L.Ed.2d 881 (1999); Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 363-64 n. 5, 100 S.Ct. 1723, 64 L.Ed.2d 354 (1980). The parties are thus fighting over who gets to keep the interest on this money--the plan, and perhaps ultimately Com Ed, or the state.

ERISA preempts any state regulation that "relates to" an ERISA plan. 29 U.S.C. § 1144(a); De Buono v. NYSA-ILA Medical & Clinical Services Fund, 520 U.S. 806, 809 n. 1, 117 S.Ct. 1747, 138 L.Ed.2d 21 (1997); Dranchak v. Akzo Nobel Inc., 88 F.3d 457, 459 (7th Cir.1996). The Uniform Act, although it does not refer explicitly to ERISA plans, relates to the Com Ed plan directly and substantially. Remember that until the check to the beneficiary is actually presented to the plan for payment through the banking system, and paid, the money due to the beneficiary is an asset of the plan. The state thus wants to take a chunk of an ERISA plan's assets and put it in the state treasury. After that happens, any beneficiary of the plan who wants his benefits will have to apply to the state for them. The state becomes the plan administrator with respect to those assets. Not only does the state become the custodian of the assets, in violation of ERISA's provisions regarding plan administration, especially 29 U.S.C. § 1103(c)(1); see Boggs v. Boggs, 520 U.S. 833, 845-46, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997); it depletes those assets, by taking the interest that accrues on them. If the ERISA plan entitled a beneficiary to interest for the period between when benefits were due him and when he actually collected them, the state would actually be reducing his ERISA benefits. Even if the plan does not provide for interest, as Com Ed's does not, the state would still be reducing the plan's assets. Suppose the benefits due the participant in year t are $10,000, and he doesn't claim them until year t+6, by which time $10,000 in plan assets would have grown through the operation of compound interest to $14,000. Then, were it not for the Uniform Act, the assets of the plan would be greater by $4,000. The Act is the device by which the state appropriates those assets for itself.

It depletes those assets in another way, by subjecting the plan to the varying laws of the different states. New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 657-58, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995). Participants in the Com Ed plan are scattered over 44 states. Though there are only two basic state-law regimes governing unclaimed property (the two uniform laws), states have tended to custom-tailor whichever uniform law they have chosen to their particular needs. The consequence is numerous variations in the amount of time before the state takes over the money (recall that Illinois has shortened the period of the Uniform Disposition of Unclaimed Property Act) and in the formalities for claiming the money from the state. Russell E. Greenblatt, "ERISA Preemption of State Unclaimed Property and Escheat Laws," 9 Benefits L.J. 51 (1996)....