Denny's, Inc. v. Cake

• Citation: 364 F.3d 521
• Decision Date: 12 April 2004
• Docket Number: No. 03-1326.,03-1326.
• Parties: DENNY'S, INCORPORATED, in its fiduciary capacity as plan administrator; Denny's, Incorporated Vacation Pay Plan; Andrew F. Green, in his capacity as trustee of the Denny's Incorporated Employee Benefits Trust; Denny's Incorporated Employee Benefits Trust, Plaintiffs-Appellants, v. Chuck CAKE, in his capacity as Acting Director of the California Department of Industrial Relations; Arthur LUJAN, in his capacity as the Labor Commissioner of the State of California, Defendants-Appellees. American Association of Retired Persons, Amicus Supporting Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 521

364 F.3d 521

DENNY'S, INCORPORATED, in its fiduciary capacity as plan administrator; Denny's, Incorporated Vacation Pay Plan; Andrew F. Green, in his capacity as trustee of the Denny's Incorporated Employee Benefits Trust; Denny's Incorporated Employee Benefits Trust, Plaintiffs-Appellants, v. Chuck CAKE, in his capacity as Acting Director of the California Department of Industrial Relations; Arthur LUJAN, in his capacity as the Labor Commissioner of the State of California, Defendants-Appellees American Association of Retired Persons, Amicus Supporting Appellee.

No. 03-1326.

United States Court of Appeals, Fourth Circuit.

Argued: January 20, 2004.

Decided: April 12, 2004.

ARGUED: Barry Vaughn Frederick, Lehr, Middlebrooks, Price & Proctor, P.C., Birmingham, Alabama, for Appellants. Miles Eric Locker, Division of Labor Standards Enforcement, Department of Industrial Relations, San Francisco, California, for Appellees. ON BRIEF: Perry D. Boulier, Holcombe, Bomar, Gunn & Bradford, P.A., Spartanburg, South Carolina, for Appellants. Anne Hipshman, Susan A. Dovi, Division of Labor Standards Enforcement, Department of Industrial Relations, San Francisco, California, for Appellees. Mary Ellen Signorille, AARP Foundation Litigation, Melvin R. Radowitz, AARP, Washington, D.C., for Amicus Curiae.

Before WIDENER, WILLIAMS, and MOTZ, Circuit Judges.

Vacated and remanded by published opinion. Judge DIANA GRIBBON MOTZ wrote the opinion, in which Judge WIDENER joined. Judge WILLIAMS wrote a concurring opinion.

OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

Upon notification from California officials that its vacation pay practices violated state labor law, Denny's, Inc. brought this action in federal court in South Carolina. Denny's asked the court to declare that the Employee Retirement Income Security Act (ERISA) preempted these state-law claims, and enjoin the California Labor Commissioner from applying the state law against Denny's. Shortly thereafter, the Commissioner sued Denny's in state court in California seeking to enforce the state law. Several months later, the district court dismissed this action, finding it lacked personal jurisdiction over the Commissioner. We believe that the court did have jurisdiction, but conclude that the Anti-Injunction Act bars all of the relief that Denny's seeks. Accordingly, we vacate the judgment of the district court and remand for entry of an order dismissing the complaint for failure to state a claim upon which relief can be granted.

I.

Denny's, a restaurant chain with its principal place of business in South Carolina, maintains the Denny's, Inc. Vacation Plan ("the Plan") and the Denny's, Inc. Employee Benefits Trust ("the Trust") for the stated purpose of providing vacation benefits to eligible employees. The Plan provides that salaried and hourly employees cannot use vacation benefit days and will not be paid any vacation benefits upon termination of their employment until and unless they have completed, respectively, six months or one year of continuous employment with Denny's.

On July 11, 2002, Denny's received a letter from an attorney at the California Department of Industrial Relations. The purpose of the letter was "to come to a global resolution" of issues raised by claims of former Denny's employees filed with the California Labor Commissioner. The attorney explained that Denny's policy requiring forfeiture of vacation benefits when employees leave prior to six months or one year of employment violated Cal. Lab.Code § 227.3. That statute provides that when "an employee is terminated without having taken off his vested vacation time, all vested vacation shall be paid to him as wages" and, further, "that an employment contract or employer policy shall not provide for forfeiture of vested vacation time upon termination." § 227.3.

The California attorney noted that the Department had concluded that "Denny's method of funding its vacation pay plan constituted a payroll practice and the plan is not therefore an ERISA plan which preempts state enforcement laws." The attorney recounted prior discussions and litigation between the parties on this issue, including a state court's refusal to grant summary judgment to Denny's on its pre-emption defense. Given the numerous claims filed with the Department, the attorney proposed that Denny's meet with the Commissioner and discuss an "amicable resolution" to avoid "the time and expense of litigation." Otherwise, the Department would have "to file an action against Denny's to finally resolve this issue."

In response, on September 6, 2002, Denny's¹ filed this action for declaratory and injunctive relief in federal court in South Carolina against the Commissioner and the director of the Department of Industrial Relations (collectively, "Commissioner"). Denny's sought: (1) a declaration that the Plan and Trust constitute an ERISA plan; (2) a declaration that "ERISA preempts the California statutes, regulations, and any action or decision" of the Commissioner "having the effect of law that [the Commissioner] seek [s] to enforce against [Denny's] based upon California law"; and (3) "[p]reliminary and permanent injunctions barring [the Commissioner] from taking any action to enforce California law against [Denny's] with regard to the Plan and the Trust."

Three weeks later, the Commissioner filed a complaint against Denny's in California state court, for damages and injunctive relief. The Commissioner asked the state court to award it unpaid vacation wages and waiting time penalties pursuant to Cal. Lab.Code § 203, and to order Denny's to "cease and desist from violating" all provisions of the state labor code. In its answer to the Commissioner's state court lawsuit, Denny's alleged ERISA preemption as an affirmative defense.

The Commissioner then moved to dismiss the present action, contending that a federal district court in South Carolina lacked personal jurisdiction over the California officials, notwithstanding ERISA's nationwide service of process provision, 29 U.S.C. § 1132(e)(2) (2000). Alternatively, the Commissioner contended that the Anti-Injunction Act, 28 U.S.C. § 2283 (2000) and abstention based on Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), compelled dismissal. On February 27, 2003, the district court granted the Commissioner's motion, concluding that it had no personal jurisdiction over the Commissioner. Denny's, Inc. v. Cake, 247 F.Supp.2d 813 (D.S.C.2003).

II.

We turn first to the question of whether the district court could exercise personal jurisdiction over the Commissioner under 29 U.S.C. § 1132(e)(2). In the case at hand the answer to that question hinges on the court's subject matter jurisdiction under 29 U.S.C. § 1132(a)(3).

ERISA contains a nationwide service of process provision that permits an ERISA enforcement action to be brought in federal court in a district "where the plan is administered" and process to be "served in any other district where a defendant resides or may be found." § 1132(e)(2). Accordingly, since the Plan is administered in Spartanburg, South Carolina, and the Commissioner has been served in California, a district court sitting in South Carolina would have personal jurisdiction over the Commissioner under § 1132(e)(2) if this is a proper ERISA enforcement action — that is, if the court had subject matter jurisdiction over the action under § 1132(a)(3).² Section 1132(a)(3) provides that "a participant, beneficiary, or fiduciary" may bring an ERISA enforcement action in federal court:

(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan[.]

29 U.S.C. § 1132(a)(3) (emphasis added).

Section 1132(a)(3)(B) thus permits an ERISA fiduciary to bring an action to "enforce any provisions of this subchapter." Id. Indisputably, "this subchapter" refers to subchapter I of Chapter 18 of the United States Code, which codified Title I of ERISA and includes 29 U.S.C. §§ 1001-1191. "[T]his subchapter" thus clearly contains ERISA's preemption provision, 29 U.S.C. § 1144. The plain language of § 1132(a)(3)(B) therefore appears to permit an ERISA fiduciary to bring an action to "enforce" § 1144 — a "provision of this subchapter."³

Indeed, the Supreme Court has expressly stated that"[u]nder § 502(a)(3)(B) of ERISA [§ 1132(a)(3)(B)], a participant, beneficiary or fiduciary of a plan covered by ERISA may bring a declaratory judgment action in federal court to determine whether the plan's trustees may comply with a state [law]." Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 26-27, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). The Court ultimately rejected the view that a state action brought by the California Franchise Tax Board against an ERISA fiduciary for a declaration that the fiduciary must comply with state law arose under ERISA and so could be removed to federal court — but only because the tax board itself was not an ERISA "participant, beneficiary, or fiduciary," as required by § 1132(a)(3). Id. at 27, 103 S.Ct. 2841. The Court assumed that the ERISA fiduciary "could have sought an injunction under ERISA against application to it of state regulations that require acts inconsistent with ERISA," but held that the declaratory action by the State, not an ERISA participant, beneficiary, or fiduciary, did not" `arise under' federal law" and so could not be removed to federal court. Id. at 20, 103 S.Ct. 2841.

In short, both the plain language of § 1132(a)(3) and the Supreme Court's interpretation of it seem to compel the conclusion that an ERISA fiduciary, like Denny's,⁴ could bring the instant action to "enforce" § 1144 by way of "an injunction ... against application ... of state regulations that require acts inconsistent with ERISA...