Franchise Tax Bd. of State of Cal. v. Construction Laborers Vacation Trust for Southern California, 80-6080

• Citation: 679 F.2d 1307
• Decision Date: 22 June 1982
• Docket Number: No. 80-6080,80-6080
• Parties: 3 Employee Benefits Ca 1577 FRANCHISE TAX BOARD OF the STATE OF CALIFORNIA, Appellee, v. CONSTRUCTION LABORERS VACATION TRUST FOR SOUTHERN CALIFORNIA, Edward Ashton, Al Atwood, Gary Bronneck, John Clarke, R. C. Gallyon, Richard Greenberg, Roger Jaska, William Middleton, Louis Bravo, Benjamin T. James, George Mattocks, William R. McClain, Nick Orsura, Joe Rivera, Ray M. Wilson, and James Keyes, Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1307

679 F.2d 1307

3 Employee Benefits Ca 1577

FRANCHISE TAX BOARD OF the STATE OF CALIFORNIA, Appellee, v. CONSTRUCTION LABORERS VACATION TRUST FOR SOUTHERN CALIFORNIA, Edward Ashton, Al Atwood, Gary Bronneck, John Clarke, R. C. Gallyon, Richard Greenberg, Roger Jaska William Middleton, Louis Bravo, Benjamin T. James, George Mattocks, William R. McClain, Nick Orsura, Joe Rivera, Ray M. Wilson, and James Keyes, Appellants.

No. 80-6080.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 2, 1982.

Decided June 22, 1982.

James P. Watson, Cox, Castle & Nicholson, Los Angeles, Cal., for appellants.

Patti S. Kitching, Los Angeles, Cal., argued, for appellee; Thomas E. Stanton, Johnson & Stanton, Victor Van Bourg, San Francisco, Cal., on brief.

Appeal from the United States District Court for the Central District of California.

Before GOODWIN and TANG, Circuit Judges, and SOLOMON ^* District Judge.

GOODWIN, Circuit Judge.

Three union members owe the State of California $48.70, $206.95 and $124.91 in unpaid personal income tax. The Franchise Tax Board of California levied against money held in trust for the three by the Construction Laborers' Vacation Trust Fund. When trustees for the fund refused to pay over the money owed, the state brought action for declaratory relief. The district court, ¹ on cross motions for summary judgment, held that the vacation fund was not protected from the levy.

The Trust appeals on the ground that ERISA (Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq.) preempts California's attempt to levy on the vacation trust for unpaid taxes. The Trust relied on an ERISA Advisory Opinion from the Department of Labor. The state relies on the difference between vacation benefits and retirement benefits, and asserts that Congress intended to protect only the latter.

The facts are undisputed. Much of the law is likewise undisputed. When delinquent taxes are owed to the State of California, the state is authorized to issue a notice to withhold under California Revenue and Taxation Code, § 18817, which reads:

"The Franchise Tax Board may by notice, served personally or by first class mail, require any employer, person, officer or department of the State, political subdivision or agency of the State ... having in their possession, or under their control, any credits or other personal property or other things of value, belonging to a taxpayer or to an employer or person who has failed to withhold and transmit amounts due pursuant to Section 18815 or 18818, to withhold, from credits or other personal property or other things of value, the amount of any tax, interest, or penalties due from the taxpayer ... and to transmit the amount withheld to the Franchise Tax Board at such time as it may designate."

ERISA specifies that its provisions "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan ...." 29 U.S.C. § 1144(a). An employee benefit plan is defined as a welfare plan or a pension plan. 29 U.S.C. § 1002(3). A welfare benefit plan, in turn, is defined as a plan with "medical, surgical ... accident, disability ... or vacation benefits." 29 U.S.C. § 1002(1).

The Trust in the instant case is an employee benefit trust to which employer parties to collective bargaining agreements with the Southern California District Council of Laborers must contribute. Contributions are made for each hour worked or are otherwise paid pursuant to the bargaining agreement.

The Trust maintains a "vacation account" for each laborer and at a specific time gives him or her a check for his or her accumulated vacation benefits. The Trust is a spendthrift trust designed to insure that the beneficiaries do not dissipate the benefits. Article 9.08 of the Trust Agreement provides:

"It is the intent and purpose of the Plan, and of this Agreement, and a material part of the consideration for the making of contributions to the Fund by individual employers, that the money in each vacation account shall be received by the employee entitled thereto personally. Accordingly, no payments due the Fund and no monies in the vacation accounts established pursuant to the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge by any employee or other person and any such anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge shall be void and ineffective. The money credited to the vacation account shall be subject to withdrawal and distribution only at the times, and in the manner and for the purposes specified in this Agreement." (Emphasis added.)

In a similar vein, § 4.06 of the Trust Agreement restrains the beneficiaries from alienating the accumulated money and specifies that the money "shall be exempt from the claims of creditors or other claimants from all orders, decrees, garnishments, executions or other legal or equitable process or proceedings."

ERISA does not in so many words protect vacation trusts from creditors' claims, as it does protect pension plans. 29 U.S.C. § 1056(d)(1). Extending similar protection to vacation funds is consistent with the statute, however, if not demanded by it. Both types of ERISA plans have the same goal: to provide accumulated money to a worker for future beneficial use. The worker's money deserves trust protection from dissipation regardless of the purpose for which the money has been set aside under ERISA.

While the state has pointed out differences between pension funds which are conceded to be protected and vacation funds which the state seeks to reach for tax collection, the state has not identified a legal basis to warrant a retreat from preemption. Moreover, Congress has not left us at liberty to construe preemption as the state would have us construe it.

The same chapter of ERISA that describes the scope of protection of employee pension benefits provides for federal preemption in connection with welfare benefit plans. 29 U.S.C. § 1144(a). See Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 522, 101 S.Ct. 1895, 1905, 68 L.Ed.2d 402 (1981).

The vacation trust fund now before the court is obviously a benefit plan described in § 1002(1). Accordingly, under the teaching of the Alessi case, which had not been decided when this matter was before the district court, we have no choice but to reverse with directions to enter judgment for the appellants.

The judgment in favor of the state is vacated and the cause is remanded for the entry of a declaratory judgment in favor of the appellants as prayed for in their cross-motion for summary judgment. Each party is to pay its own costs.

TANG, Circuit Judge dissenting:

I respectfully dissent. The majority opinion is flawed in two major respects. First, I doubt that the district court possessed subject-matter jurisdiction over this action. Second, even if the district court possessed subject-matter jurisdiction, I disagree with the majority opinion's conclusion that ERISA preempts the California levying statute.

I. The Absence of Subject-Matter Jurisdiction.

It is axiomatic that an action brought in state court may be removed only if federal question, diversity, or some other independent federal jurisdictional basis exists. 28 U.S.C. § 1441(a) (1976); Guinasso v. Pacific First Federal Savings & Loan Association, 656 F.2d 1364, 1366 (9th Cir. 1981). It is likewise axiomatic that the jurisdictional basis for removal must be apparent from the plaintiff's complaint rather than from the defendant's answer or counterclaim. See Gully v. First National Bank in Meridian, 299 U.S. 109, 112-18, 57 S.Ct. 96, 97-100, 81 L.Ed. 70 (1936).

The Franchise Tax Board's complaint does not provide these two fundamental basis for removal. Its prayer for relief is grounded purely upon state law and seeks recovery against only an in-state defendant. No federal question is raised, nor does diversity of citizenship exist. ¹ It is only the Trustees' defense that poses a federal question, namely, whether ERISA preempts the state levying statute. When raised as a defense, however, federal preemption is an insufficient jurisdictional basis for removal. See, e.g., Guinasso, 656 F.2d at 1366. The conclusion is inescapable that the district court lacked subject-matter jurisdiction over this action to have permitted removal. See Gully, 299 U.S. at 112-18, 57 S.Ct. at 97-100 (removal improper where plaintiff state tax collectors' cause of action based in state law and federal question presented only in defendant's answer). The district court judgment should therefore be vacated with instructions to remand the action to state court.

II. Preemption by ERISA.

The issue on the merits is whether ERISA preempts the California levying statute insofar as the state statute permits the Franchise Tax Board to levy against a vacation trust to satisfy a beneficiary's delinquent taxes. The majority opinion concludes that the levying statute is preempted. It finds first that the levying statute is in conflict with an implied requirement in ERISA prohibiting levies against vacation trust funds and, second, that the levying statute falls within the preemptive scope of ERISA § 514(a), 29 U.S.C. § 1144(a) (1976), as a State law relating to an employee benefit plan. ² Ante at 1309. Neither ground is persuasive.

A. Direct Conflict with ERISA.

It is clear that a state's levying statute is preempted if it directly conflicts with one of ERISA's regulatory provisions. See, e.g., Ray v. Atlantic Richfield Co., 435 U.S. 151, 158, 98 S.Ct. 988, 994, 55 L.Ed.2d 179 (1978). The majority opinion concedes that "ERISA does not in so many words protect vacation trusts from creditors' claims," ante at 1309, but argues that ERISA's purpose and the anti-alienation clause in section 206(d)(1), 29 U.S.C. § 1056(d)(1) (1976), ³ support finding an implied prohibition in ERISA against levying a vacation...