Cowan v. Keystone Emp. Profit Sharing Fund

• Decision Date: 21 November 1978
• Docket Number: No. 78-1212,78-1212
• Citation: 586 F.2d 888
• Parties: 1 Employee Benefits Ca 1184 Kenneth J. COWAN, Plaintiff, Appellant, v. KEYSTONE EMPLOYEE PROFIT SHARING FUND, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 888

586 F.2d 888

1 Employee Benefits Ca 1184

Kenneth J. COWAN, Plaintiff, Appellant, v. KEYSTONE EMPLOYEE PROFIT SHARING FUND, Defendant, Appellee.

No. 78-1212.

United States Court of Appeals,

First Circuit.

Argued Sept. 15, 1978.

Decided Nov. 21, 1978.

Neil Lynch, Boston, Mass., with whom Herlihy & O'Brien, Boston, Mass., was on brief, for plaintiff, appellant.

Michael J. Liston, Boston, Mass., with whom Robert W. Meserve and Newman & Meserve, Boston, Mass., were on brief, for defendant, appellee.

Before KUNZIG, Judge, U.S. Court of Claims, ^* CAMPBELL and BOWNES, Circuit Judges.

LEVIN H. CAMPBELL, Circuit Judge.

This is an appeal from the district court's dismissal of Cowan's suit for lack of subject matter jurisdiction. Cowan, whose employment with Keystone ended in November 1974, seeks to establish an interest in Keystone's Profit-Sharing Catch-Up Plan (the Catch-Up Plan), an employee pension benefit plan established in accordance with the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1381, and qualified under I.R.C. § 401.

Cowan's asserted interest in the Catch-Up Plan is based on the following allegations: Cowan, who went to work for Keystone in 1964, was by 1967 a fully vested participant of the Keystone Profit-Sharing Plan. During four of those years, 1970, 1971, 1972 and 1974, Keystone was unable to make its full contribution to this retirement trust. In a summary of the trust's terms issued in 1971, however, Keystone stated that whenever it was unable to make its full contribution in a "lean" year it would replenish the fund in subsequent years. On November 4, 1974, the Keystone Profit-Sharing Plan was amended by the addition of provisions for the Profit-Sharing Catch-Up Plan. ¹ Under the Catch-Up Plan Keystone would, in effect, make up the shortfall for 1970, 1971, 1972 and 1974. These additional funds would not, however, be paid to anyone terminated before December 31, 1974, regardless of whether they had been employed during any of the "lean" years. ²

Cowan, in his words, was "forced to resign" from Keystone on November 19, 1974. In connection with his retirement he negotiated a termination agreement with Keystone that included a settlement of his pension benefits. Cowan alleges that during the negotiations Keystone represented to him that there was no possibility that the company would make up the shortfall for 1970-72 and 1974 and concealed from him the fact that the Catch-Up Plan was being formulated.

The termination agreement was signed on November 28, 1974, but final payment of Cowan's benefits did not occur until January 2, 1975. Cowan apparently did not learn of the Catch-Up Plan until 1977. At that time, he requested additional benefits for the years 1970-72 and 1974. This request was denied on the ground that Cowan was neither a participant nor a beneficiary under the terms of the Catch-Up Plan.

Cowan concedes that the terms of the Catch-Up Plan exclude him but contends that he nevertheless is entitled to an interest in it. He alleges that the trustees of the Catch-Up Plan violated their fiduciary duties under ERISA, 29 U.S.C. §§ 1104, 1105, ³ when they denied his request for benefits. He also argues that Keystone's alleged concealment of the Catch-Up Plan in 1974 was fraudulent and that, had he known of the Plan, he would have sought higher termination benefits from Keystone. Thus he maintains that he cannot be held to have waived his rights in the Catch-Up Plan when he signed his termination agreement.

Shortly after filing his complaint Cowan served Keystone with extensive interrogatories probing the terms and operations of its various profit-sharing retirement trusts. Keystone obtained a protective order permitting it not to respond until its motion to dismiss for lack of subject matter jurisdiction was ruled upon. Both the magistrate and the district court agreed, on the basis of memoranda of law and Cowan's complaint, ⁴ that there was no federal jurisdiction over Cowan's claims. Cowan now appeals from the district court's decision allowing Keystone's 12(b)(1), Fed.R.Civ.P., motion to dismiss.

Cowan asserted federal jurisdiction under a variety of statutory provisions, including a number of provisions in ERISA. ⁵ The only plausibly relevant section and the only section that we deal with here was 29 U.S.C. § 1132. ⁶ The district court held that jurisdiction under that section was precluded by 29 U.S.C. § 1144, ⁷ which provides with certain exceptions that subchapter I of ERISA (including therefore § 1132) supersedes any and all state laws relating to employee benefit plans covered by ERISA, 29 U.S.C. § 1144(a), but which does not apply to "any cause of action which arose, or any act or omission which occurred, before January 1, 1975," 29 U.S.C. § 1144(b)(1).

The district court reasoned that,

"The specific exclusion in subsection (b)(1) of Section 1144 of causes of action which arose or acts or omissions which occurred prior to January 1, 1975 . . . is meaningful only if read as precluding Section 1132 jurisdiction for such causes of action or acts or omissions. I hold, therefore, that Section 1144 bars Section 1132 jurisdiction for causes of action arising or acts or omissions occurring prior to January 1, 1975."

449 F.Supp. at 238. This precluded federal jurisdiction over any cause of action that Cowan might have that arose in the fall of 1974. The court rejected Cowan's alternative argument that his cause of action arose in 1976 and 1977, when Keystone denied him benefits under the Catch-Up Plan yet paid them to others. It granted Keystone's 12(b)(1) motion on these grounds.

Cowan's position on appeal is that the district court erred both in finding that the civil enforcement section of ERISA, 29 U.S.C. § 1132, does not provide a federal forum for litigating causes of action arising before January 1, 1975, and in ruling that no cause of action under ERISA arose after that date. Thus Cowan argues that the court had jurisdiction whether the cause of action arose before or after January 1, 1975. We reject these arguments and affirm the dismissal for want of subject matter jurisdiction.

The requirements for establishing federal court jurisdiction have been addressed frequently by the Supreme Court. In Bell v. Hood, 327 U.S. 678, 681-82, 66 S.Ct. 773, 775-76, 90 L.Ed. 939 (1946), the Court held that jurisdiction generally is established by a properly pleaded complaint, "drawn so as to claim a right to recover under the Constitution and laws of the United States. . . . (W)here the complaint . . . is so drawn . . . the federal court, but for two possible exceptions . . . , must entertain the suit." Here Cowan has alleged violations of certain sections of ERISA, 29 U.S.C. §§ 1104, 1105, and has cited the civil enforcement section of ERISA, 29 U.S.C. § 1132, as the basis for federal jurisdiction. Section 1132(a) gives participants ⁸ and beneficiaries of pension plans the right to sue to redress violations of ERISA and to enforce their rights to pension benefits. ⁹ Section 1132(d) provides that an employee benefit plan may sue or be sued as an entity, § 1132(f) grants jurisdiction to the federal district courts without regard to the amount in controversy, and § 1132(e) provides that the federal courts have exclusive jurisdiction over all suits except those brought under § 1132(a)(1) (B). On the face of it, therefore, Cowan's complaint states a federal claim.

It is not sufficient, however, that a complaint merely state a federal claim. Under Bell federal jurisdiction may be denied if the federal claim is "immaterial and made solely for the purpose of obtaining jurisdiction" or "is wholly insubstantial and frivolous." 327 U.S. at 682-83, 66 S.Ct. at 776; Cf. Hagans v. Lavine, 415 U.S. 528, 536-37, 94 S.Ct. 1372, 39 L.Ed.2d 577 (1974) (jurisdiction under 28 U.S.C. § 1343(3) ); Molina-Crespo v. Califano, 583 F.2d 572 at 573-574 (1st Cir. 1978) (jurisdiction based on constitutional claims). We feel that these exceptions preclude federal jurisdiction here. In our view, § 1132 confers jurisdiction over claims of the type asserted by Cowan only if they arose after January 1, 1975, and Cowan's substantive claims all arose, if at all, before that date.

The path to this result is, to be sure, somewhat tortuous. Section 1132 on its face appears to grant federal courts jurisdiction to hear all cases against pension plans. Since it does not have an explicit effective date, several courts have reasoned that § 1132 became effective when ERISA was enacted on September 2, 1974. Reiherzer v. Shannon, 581 F.2d 1266, 1271 (7th Cir. 1978); Morgan v. Laborers Pension Trust Fund, 433 F.Supp. 518, 525 (N.D.Cal.1977). This might suggest that the federal courts have authority to decide any pension disputes arising after that date. But § 1132 merely authorizes federal courts to hear suits involving a broad spectrum of pension claims it does not purport to create particular causes of action or to define the substantive rights giving rise to such claims. For these we must look elsewhere. It is clear, moreover, that whatever the extent of this jurisdictional grant, it may not exceed the limits established by the constitution, U.S.Const. art. III, § 2. In cases such as this, where there is no diversity jurisdiction and none of the other, more specific bases for article III jurisdiction apply, the primary cause of action sued upon must arise under federal law for the case to be heard in a federal court. See Association of Westinghouse Salaried Employees v. Westinghouse Electric Corp., 348 U.S. 437, 449-59, 75 S.Ct. 489, 99 L.Ed. 510 (1955). State law claims may be entertained only if they arise out of the same nucleus of facts as a federal claim and simply constitute a second ground for relief. United Mine Workers v. Gibbs, 383 U.S. 715, 722, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966); Hurn v. Oursler, 289 U.S. 238, 245-46, 53 S.Ct. 586, 77 L.Ed. 1148 (1...