Fairneny v. Savogran Co.

• Citation: 664 N.E.2d 5,422 Mass. 469
• Parties: , 11 IER Cases 1132 Robert J. FAIRNENY & another 1 v. SAVOGRAN COMPANY.
• Decision Date: 17 April 1996
• Court: United States State Supreme Judicial Court of Massachusetts

Page 5

664 N.E.2d 5

422 Mass. 469, 11 IER Cases 1132

Robert J. FAIRNENY & another ¹ v. SAVOGRAN COMPANY.

Supreme Judicial Court of Massachusetts Norfolk.

Argued March 4, 1996.

Decided April 17, 1996.

CIVIL ACTION commenced in the Superior Court Department on December 31, 1990.

The case was heard by Charles F. Barrett, J., on a motion to dismiss.

Leave to appeal was granted in the Appeals Court by Edith W. Fine, J. The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court.

Michael Sobol, Boston, (Samuel M. Shafner with him), for defendant.

Robert S. Potters, Boston, for plaintiffs.

Before LIACOS, C.J., and WILKINS, ABRAMS, LYNCH and GREANEY, JJ.

GREANEY, Justice.

We transferred the case to this court on our own motion to decide whether the plaintiffs' claims of wrongful discharge and defamation ² are preempted by § 514(a), 29 U.S.C. § 1144, of the Federal Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461 (1994). ³ A judge in the Superior Court concluded that any connection between the plaintiffs' claims and the provisions of ERISA was "too tenuous and peripheral to warrant a finding that the plaintiffs' cause of action 'relates to' an employee benefit plan," and denied the defendant's motion to dismiss for lack of subject matter jurisdiction. See Mass.R.Civ.P. 12(b)(1), 365 Mass. 754 (1974). A single justice of the Appeals Court properly allowed the defendant to pursue an interlocutory appeal of the denial of its motion to dismiss. See Leavitt v. Mizner, 404 Mass. 81, 87-88, 533 N.E.2d 1334 (1989). We conclude that the plaintiffs' claims are preempted by ERISA, and that the defendant was entitled to judgment on the basis of its motion to dismiss.

For purposes of deciding a motion to dismiss, we accept as true the allegations in the complaint, and draw all reasonable inferences in favor of the party whose claims are the subject of the motion. See C.M. v. P.R., 420 Mass. 220, 221, 649 N.E.2d 154 (1995). The complaint, including various exhibits attached to it and incorporated by reference, makes the following allegations. The plaintiffs are former officers and directors of Savogran Company (company), a Massachusetts corporation which manufactures paint remover and other chemical-based products. On December 16, 1988, the company's directors voted to adopt an employee stock ownership plan (plan) and to appoint the plaintiffs and Robert Lenk (then the company's president) as the trustees of the plan. As employees of the company, the plaintiffs also were participants in the plan. Since the plan was subject to ERISA regulation, the plaintiffs and Lenk, as trustees, assumed fiduciary responsibilities for the administration of the plan. See 29 U.S.C. §§ 1101-1114. The nature and extent of these newly created duties was set out at length in a March 10, 1989, letter from counsel, addressed to the plaintiffs and Lenk. ⁴ Among other things, the letter pointed out that a plan fiduciary has a responsibility to take reasonable corrective measures when he is aware that a cofiduciary has failed, or is failing, to comply with his fiduciary obligations.

Compelled by their fiduciary responsibilities, the plaintiffs began to scrutinize Lenk's conduct, and to confront him with instances of misconduct that violated his fiduciary obligations to the company and the plan. For example, during 1989 and 1990, Lenk failed to justify or document expenditures of company funds under his control, exposing the company to possible tax liability; used company funds to cover personal expenditures; and directed corporate counsel to perform personal legal services for him. Lenk also failed to make restitution for improper expenditures he had caused the company to make before the plan went into effect. In retaliation, and to avoid detection of additional misconduct on his part, Lenk accused the plaintiffs of misconduct, which resulted in their termination without cause by the company's board of directors. In addition, Lenk circulated false and defamatory letters about the plaintiffs to a professional search firm retained by the board to seek Lenk's replacement, and to a vice president of the United States Trust Company. ⁵

1. Wrongful termination claims. An essential premise of the complaint is that State law provides a remedy when an ERISA fiduciary is terminated in retaliation for carrying out fiduciary obligations because, under State law, that is a discharge in violation of a clearly defined public policy. Because the defendant does not argue otherwise, we assume, without deciding, that we would recognize as wrongful the termination of an employee who is discharged in retaliation for carrying out a fiduciary duty in connection with a plan governed by ERISA. ⁶ See GTE Prods. Corp. v. Stewart, 421 Mass. 22, 33, 653 N.E.2d 161 (1995), and cases cited therein. See also Authier v. Ginsberg, 757 F.2d 796, 798 (6th Cir.) (concluding that Michigan would recognize as protected activity employee's compliance with ERISA fiduciary obligations), cert. denied, 474 U.S. 888, 106 S.Ct. 208, 88 L.Ed.2d 177 (1985). Nonetheless, we conclude that the plaintiffs may not pursue their wrongful termination claims because those claims are preempted by ERISA.

In view of existing decisional law, the conclusion that the claims are preempted would be difficult to avoid. See Kelly v. Fort Dearborn Life Ins. Co., 422 Mass. 15, 16-17, 660 N.E.2d 1100 (1996). Contrast Pace v. Signal Technology Corp., 417 Mass. 154, 157-158, 628 N.E.2d 20 (1994) (noting split in authority as to whether State common law claim of misrepresentation is preempted by ERISA; claim did not relate to plan). In the case of Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990), the United States Supreme Court held that ERISA preempts a State law claim of wrongful discharge premised on an employer's interference with an employee's attainment of rights under an employee benefit plan. In the Ingersoll-Rand case, the Court observed, "[A] state law may 'relate to' a benefit plan, and thereby be pre-empted, even if the law is not specifically designed to affect such plans, or the effect is only indirect.... Pre-emption is also not precluded simply because a state law is consistent with ERISA's substantive requirements." (Citations omitted.) Id. at 139, 111 S.Ct. at 483. Where the "existence of a pension plan is a critical factor in establishing liability," id. at 139-140, 111 S.Ct. at 483, a State law claim will be preempted. In addition, the Court noted, the claim brought by the plaintiff in Ingersoll-Rand conflicted directly with an existing ERISA cause of action. This fact provided an independent basis for a finding of preemption by implication. Id. at 142-145, 111 S.Ct. at 484-486.

The United States Supreme Court has not considered whether a wrongful discharge claim brought by a person in the plaintiffs' circumstances, rather than by a plan beneficiary or participant claiming entitlement to benefits under an ERISA-governed plan, is preempted by ERISA. However, other Federal and State courts have considered the issue, and have concluded uniformly that wrongful discharge claims similar to those brought by the plaintiffs are subject to ERISA preemption. See Anderson v. Electronic Data Sys. Corp., 11 F.3d 1311, 1313-1315 (5th Cir.), cert. denied, 513 U.S. 808, 115 S.Ct. 55, 130 L.Ed.2d 14 (1994); Hashimoto v. Bank of Hawaii, 999 F.2d 408, 410-411 (9th Cir.1993); Authier v. Ginsberg, supra at 799-802. See also McLean v. Carlson Cos., 777 F.Supp. 1480, 1483 (D.Minn.1991) (claim by whistleblower); Andrews v. Alaska Operating Eng'rs-Employers Training Trust Fund, 871 P.2d 1142, 1144-1147 (Alaska) (same), cert. denied, 513 U.S. 874, 115 S.Ct. 201, 130 L.Ed.2d 132 (1994). These cases reason that claims, like those brought by the plaintiffs, "relate to" an employee benefit plan because such claims (1) depend on the existence of an ERISA plan, see Anderson v. Electronic Data Sys. Corp., supra at 1314; Authier v. Ginsberg, supra at 800; (2) would involve at least some inquiry at trial into the character and extent of the fiduciary duties imposed by ERISA, see Hashimoto v. Bank of Hawaii, supra at 411; McLean v. Carlson Cos., supra at 1483; and (3) would introduce inconsistency into the administration of ERISA plans because not all of the States recognize, or treat uniformly, claims of retaliatory discharge. See Authier v. Ginsberg, supra at 802.

The plaintiffs' retaliatory discharge claims clearly are subject to ERISA's preemption provision on these bases. The plaintiffs, described in the complaint as employees at will, claim no protection from termination apart from their status as fiduciaries of an ERISA plan whose performance of their duties should be protected from adverse employment action. See Jackson v. Action for Boston Community Dev., Inc., 403 Mass. 8, 9, 525 N.E.2d 411 (1988) (as general rule, an employee at will may be terminated "for almost any reason or for no reason at all"). Their retaliatory discharge claims, therefore, depend on the existence of an ERISA plan and their status as fiduciaries of that plan. According to the allegations in the complaint, the parties' motivations would be at issue in a trial of this case. It must be inferred, therefore, that the character and scope of the fiduciary duties mandated by ERISA would be an issue at trial on which a jury would require instructions. As the United States Court of Appeals for the Sixth Circuit observed in the Authier case, allowing a State court to "define the scope of a fiduciary's duties under ERISA and the [remedies available to an aggrieved plaintiff] ... runs contrary to Congress's desire to establish a uniform federal law regulating pension plans." Authier v. Ginsberg, supra at 802.

In addition, ERISA's "detailed and carefully balanced remedy provisions," Anderson v. Electronic Data Sys. Corp., supra at 1314, provide remedies for...