Essington Metal Works v. RETIREMENT PLANS OF AMER.

• Decision Date: 04 June 1985
• Docket Number: Civ. A. No. 81-5094,82-4820.
• Parties: ESSINGTON METAL WORKS, INC., et al. v. RETIREMENT PLANS OF AMERICA, INC., et al. ESSINGTON METAL WORKS, INC., et al. v. Sidney A. FRIEDMAN.
• Court: U.S. District Court — Eastern District of Pennsylvania

609 F. Supp. 1546

ESSINGTON METAL WORKS, INC., et al. v. RETIREMENT PLANS OF AMERICA, INC., et al.

ESSINGTON METAL WORKS, INC., et al. v. Sidney A. FRIEDMAN.

Civ. A. Nos. 81-5094, 82-4820.

United States District Court, E.D. Pennsylvania.

June 4, 1985.

COPYRIGHT MATERIAL OMITTED

Sheva Stoloff, Beitch and Block, Philadelphia, Pa., for plaintiffs.

Stephen J. Springer, LaBrum and Doak, Philadelphia, Pa., for defendants.

MEMORANDUM

LOUIS H. POLLAK, District Judge.

In December 1981, Retirement Plans of America, Ernest D. Palmarella, Jo-Ann Laverghetta, and Leon L. Levy ("RPA parties") removed to this court a suit which had been filed against them in the Court of Common Pleas for Philadelphia County. That suit had been brought by Essington Metal Works, Inc.; Essington Metal Works, Inc. Pension Plan and Trust; and Essington Metal Works, Inc. Profit Sharing Plan and Trust ("Essington parties"). The complaint set forth a variety of tort causes of action based upon alleged breaches of duty by the RPA parties in preparing and implementing an employee benefits plan for use by the Essington parties. The complaint also set forth a cause of action for breach of contract based upon the same allegations. The suit was recorded on the docket of this court as Civil Action Number 81-5094. The removal petition stated that removal was proper because the complaint included a claim for breach of fiduciary duty which could only be brought under the Employee Retirement Income Security Act, ("ERISA"), 29 U.S.C. §§ 1001 to 1461, a federal statute. See 28 U.S.C. § 1441(a) and (b) (removal of a federal question suit is authorized without regard to the citizenship of the parties).

On March 24, 1982, Louis Stafford brought suit in this court against one of the Essington parties, Essington Metal Works, Inc. and Fred Hoffken Sr. The suit alleged a claim under ERISA for recovery of employee benefits allegedly due to Mr. Stafford. 29 U.S.C. § 1132(a)(1)(B). The Essington parties thereafter filed a third-party complaint against the RPA parties in the suit filed by Mr. Stafford. The allegations in the third-party complaint paralleled the claims asserted in Number 81-5094 but the third-party complaint sought recovery solely for the damages for which the Essington parties might be liable under the Stafford claim. This suit was assigned Civil Action Number 82-1339.

In June of 1982, Civil Actions 81-5094 and 82-1339 were consolidated pursuant to the unopposed motion of the RPA parties.

In November 1982, Sidney A. Friedman removed to this court a suit filed against him in the Court of Common Pleas by the Essington parties. Mr. Friedman is a member of the Board of Directors and shareholder of Retirement Plans of America and was sued on the grounds charged against the RPA parties in the other two actions. Removal of the suit against Mr. Friedman was predicated on diversity of citizenship; Mr. Friedman is a citizen of New Jersey and the Essington parties are citizens of Pennsylvania. This case was assigned Civil Action Number 82-4820 and was consolidated with the other two cases in June 1983.

Following a period of discovery, the Stafford suit (82-1339) went to trial with the court sitting as the finder of fact. At the close of the trial, the court, in a bench opinion, concluded that judgment should be entered for the Essington parties and against Mr. Stafford, a result that rendered moot the Essington parties' third-party claim against the RPA parties. At the same time, the court denied the motions of the Essington parties to remand their suits against the RPA parties (81-5094) and Mr. Friedman (82-4820). The latter suit appeared to be a proper diversity case, and the former seemed cognizable as a federal question claim under ERISA to which were annexed a number of pendent state claims.

An appeal was filed in Stafford and the two other cases were placed in civil suspense pending resolution of the appeal. In May 1984, the Court of Appeals for the Third Circuit affirmed the Stafford judgment. No petition for certiorari was filed.

On October 30, 1984, the Essington parties moved for leave to amend the complaint in the RPA suit. The motion stated that plaintiffs intended, by means of this amendment, to clarify the nature of the claims asserted. The movants contended that, if the motion to amend was granted, it would be clear from the amended complaint that the Essington parties were alleging only state law claims and did not intend to present a claim for breach of fiduciary duty under ERISA. The RPA parties responded to this motion on November 20, 1984. They argued that an amendment should not be allowed if the only purpose of such an amendment was to oust the federal court of jurisdiction. See generally Westmoreland Hospital Association v. Blue Cross, 605 F.2d 119 (3d Cir.1979); 1A Moore's Federal Practice ¶ .1607 (1985); 14A C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3738 at 558-59 (1985). In addition, the RPA parties contended that the amended complaint could also be construed to contain a claim for breach of fiduciary duty and, thus, federal jurisdiction would be proper even if the amendment was allowed.

Upon review of these submissions, this court entered an Order scheduling oral argument on the motion to amend. In that Order, the court directed the parties to submit further memoranda on the following questions:

Bearing in mind the frequently stated principles regarding limitations on federal court jurisdiction of a removed case when the state court from which the case was removed could not have had jurisdiction of the suit, Gleason v. United States, 458 F.2d 171 (3d Cir.1972); Stapleton v. $2,438,110, 454 F.2d 1210 (3d Cir.1972); Leddy v. United States Postal Service, 525 F.Supp. 1053 (E.D.Pa.1981), see 14 C.A. Wright & A.R. Miller, Federal Practice and Procedure, § 3721 at p. 523 and § 3722 at p. 574; 1A Moore's Federal Practice ¶ 0.1573, do those principles have relevance to the present action? If so, how should those principles be applied to this litigation? If not, why are they not relevant?

Essington Metal Works, Inc., et al. v. Retirement Plans of America, et al., No. 81-5094 at 2 (March 22, 1985). The parties have since filed those submissions and oral argument was held on May 3, 1985. For the reasons set forth below, this court concludes that the RPA action must be remanded to the Court of Common Pleas for Philadelphia County.

The basis for removal of the RPA suit was the inclusion among the claims against RPA of a claim which arguably fell under section 1109 of Title 29 of the United States Code. That provision of ERISA creates liability for breach of fiduciary duty. A civil action may be brought to recover for such a breach under section 1132(a)(2). Jurisdiction to hear such claims is exclusively vested in the federal courts. 29 U.S.C. § 1132(e)(1).¹

In 1922, the Supreme Court, speaking through Justice Brandeis, established the general principle that:

the jurisdiction of the federal court on removal is, in a limited sense, a derivative jurisdiction. If the state court lacks jurisdiction of the subject matter or of the parties, the federal court acquires none, although it might in a like suit originally brought there have had jurisdiction.

Lambert Run Coal Co. v. Baltimore & Ohio RR. Co., 258 U.S. 377, 382, 42 S.Ct. 349, 351, 66 L.Ed. 671 (1922). See Franchise Tax Board of California v. Construction Laborers Vacation Trust for Southern California, 463 U.S. 1 n. 27, 103 S.Ct. 2841 n. 27, 77 L.Ed.2d 420 (1983); 1A Moore's Federal Practice ¶ 0.1573.-1 to 3.-5 (1985); 14A C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure §§ 3721 and 3722 (1985). This doctrine of "derivative jurisdiction" has been consistently applied by the federal courts as a ground for dismissal of an action when the state court lacked jurisdiction to entertain the action at the time of or prior to removal.

In federal question cases, the principle of derivative jurisdiction mandates dismissal of an action when the federal cause of action arises under a statute which vests exclusive jurisdiction in the federal courts. Dismissal is required despite the fact that the court would have had jurisdiction to hear the suit had it initially been brought in federal court. E.g., State of Minnesota v. United States, 305 U.S. 382, 59 S.Ct. 292, 83 L.Ed. 235 (1939); General Investment Co. v. Lake Shore Ry., 260 U.S. 261, 43 S.Ct. 106, 67 L.Ed. 244 (1922); Gleason v. United States, 458 F.2d 171 (3d Cir.1972).

Because the deficiency is one which goes to the subject-matter jurisdiction of the court, it may be raised at any time — even on appeal. Moreover, it may, as in the present suit, be raised by the court sua sponte. 1A Moore's Federal Practice ¶ 0.157 3.-2 at 58 (1985).

The RPA suit was removed to this court solely on the basis of this court's jurisdiction to hear cases arising out of federal statutes. The federal statute upon which the removal petition relies is ERISA and the portion of ERISA under which the plaintiffs' claim allegedly falls is one over which federal courts possess exclusive jurisdiction. Therefore, the state court had no jurisdiction to hear that claim. Although the state court may have had general jurisdiction to hear and determine the state law claims in this case, those claims were not the basis for removal. Because the only claim which formed the basis for removal was one over which the state court had no jurisdiction, this court could not obtain jurisdiction by removal. Consequently, removal was improper and the matter should be dismissed or returned to the state court. See generally Cate v. Blue Cross & Blue Shield of Alabama, 434 F.Supp. 1187, 1189 n. 3 (E.D.Tenn.1977).

The RPA parties contend, however, that this court should retain jurisdiction of the RPA litigation for a number of reasons. The primary argument presented in support of this position is that the Essington parties have waived any...