Halley v. Ohio Co.

• Decision Date: 27 November 1995
• Docket Number: No. 68260,68260
• Citation: 107 Ohio App.3d 518,669 N.E.2d 70
• Parties: HALLEY et al., Appellants, v. OHIO COMPANY, Appellee.
• Court: Ohio Court of Appeals

Page 518

107 Ohio App.3d 518

669 N.E.2d 70

HALLEY et al., Appellants, v. OHIO COMPANY, Appellee.

No. 68260.

Court of Appeals of Ohio Eighth District, Cuyahoga County.

Decided Nov. 27, 1995.

McDonald, Hopkins, Burke & Haber Co., L.P.A., Thomas C. Schrader, Joseph E. McGraw and Erica L. Eversman, Cleveland, for appellants.

Carlile, Patchen & Murphy, Dennis J. Concilla and John E. Haller, Columbus, for appellee.

NAHRA, Judge.

Plaintiffs H. Myron Halley, M.D., Inc., the H. Myron Halley, M.D., Inc. Defined Benefits Pension Plan and Trust, H. Myron Halley, M.D. and Joan F Halley, appeal from the judgment of the Cuyahoga County Court of Common Pleas dismissing their complaint against defendant-appellee, the Ohio Company. For the following reasons, we reverse and remand.

The facts as alleged in the complaint are as follows:

Appellants H. Myron Halley, M.D., and Joan F. Halley are participants and trustees of appellant the H. Myron Halley, M.D., Inc. Defined Benefits Pension Plan and Trust ("Pension Plan"). The Ohio Company, a full service brokerage firm, at all times relevant to this action, assisted the cotrustees (Dr. and Mrs. Halley) with the management, investment, distribution, transfer and control of Pension Plan assets. The Halleys placed Pension Plan assets under the control and management of the Ohio Company.

In December 1992, the Halleys, as cotrustees, terminated the Pension Plan. On December 3, 1992, their agent, National City Bank, in Cleveland, Ohio, instructed the Ohio Company to distribute the Pension Plan's assets (approximately $1 million) on or before December 31, 1992 to an Individual Retirement Account ("IRA") set up by National City Bank for the Halleys. The authorizations for transfer signed by the Halleys specified that transfer of the Pension Plan's assets was to be made on or before December 31, 1992. The Ohio Company transferred all but $27,000 of the Plan's approximately $1 million in assets to the Halleys' IRA before December 31, 1992. Upon learning that the Plan had approximately $27,000 in a separate account, in street name, it transferred this balance to the Halleys' IRA on March 3, 1993.

The appellants' complaint asserted claims for declaratory judgment, breach of contract, breach of fiduciary duty and negligence. Appellants claimed that because of the Ohio Company's failure to transfer the Pension Plan's assets on or before December 31, 1992, appellants were subject to a claim for taxes and penalties which the IRS may assess against them. Appellants demanded a judgment and order of indemnification by the Ohio Company of any and all taxes assessed against appellants by the IRS. The complaint demanded $500,000 in compensatory damages. Appellants had not suffered any monetary damages as of the time of the filing of the complaint.

The Ohio Company sought dismissal of the complaint on two alternative bases: first, that the trial court lacked subject matter jurisdiction of the action because the appellants' state law claims were preempted by the Employee Retirement Income Security Act, Section 1001 et seq., Title 29, U.S.Code ("ERISA"), and second, that the complaint failed to state claims upon which judgment could be granted.

Appellants' first assignment of error states:

"The trial court erred in granting defendant-appellee's motion to dismiss as plaintiffs-appellants' complaint alleged only state law causes of action which are not preempted by the Employee Retirement Income Security Act and were properly before the trial court."

Federal courts have exclusive jurisdiction over all ERISA claims, with certain exceptions that do not apply here. Section 1132(e)(1), Title 29, U.S.Code. ERISA preempts state laws that "relate to any employee benefit plan." Section 1144(a), Title 29, U.S.Code. "Relate to" is interpreted broadly, such that a state-law cause of action is preempted if it has a connection with or reference to an employee benefit plan. See Pilot Life Ins. Co. v. Dedeaux (1987), 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39. However, state actions that affect an employee benefit plan only in a remote or peripheral manner are not preempted by ERISA. Shaw v. Delta Air Lines (1983), 463 U.S. 85, 100, 103 S.Ct. 2890, 2901, 77 L.Ed.2d 490, 502-503, fn. 21; Ingersoll-Rand Co. v. McClendon (1990), 498 U.S. 133, 139-140, 111 S.Ct. 478, 483, 112 L.Ed.2d 474, 483-484.

While there is no simple test for determining whether a state law "relates to" a plan, the courts have established some guiding principles. There are four situations in which ERISA will generally preempt state law:

(1) when laws are specifically designed to affect employee benefits, Mackey v. Lanier Collection Agency & Serv., Inc. (1988), 486 U.S. 825, 108 S.Ct. 2182, 100 L.Ed.2d 836;

(2) when state-law and common-law claims are for the recovery of an ERISA plan benefit, see Tolton v. Am. Biodyne, Inc. (C.A.6, 1995), 48 F.3d 937, and Cromwell v. Equicor-Equitable HCA Corp. (C.A.6, 1991), 944 F.2d 1272;

(3) when ERISA provides a specific remedy, Perry v. P*I*E Nationwide, Inc. (C.A.6, 1988), 872 F.2d 157, and Richland Hosp., Inc. v. Ralyon (1987), 33 Ohio St.3d 87, 516 N.E.2d 1236; and

(4) when state laws and common-law claims provide remedies for misconduct growing out of ERISA plan administration. Richland Hosp., supra.

It is not relevant whether the plaintiffs will be left without a remedy. Cromwell and Tolton, supra.

The following factors indicate that a state law is merely peripheral to a pension plan:

(1) The law involves an area of traditional state regulation;

(2) The state law does not affect relations among the ERISA entities, i.e., the employer, the plan, the plan fiduciaries and/or the beneficiaries; and 3) The effect of the state law on the plan is incidental in nature. Firestone Tire & Rubber Co. v. Neusser (C.A.6, 1987), 810 F.2d 550.

In this case, appellee asserts that ERISA preempts the state-law claims because ERISA provides a cause of action for breach of fiduciary duty. Section 1104, Title 29, U.S.Code. See Perry v. P*I*E, supra. According to ERISA, "a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan." Section 1002(21)(A), Title 29, U.S.Code.

The complaint does not allege that the Ohio Company had discretion over the investment, management, distribution, transfer and control of plan assets, but only states that the Ohio Company assisted in these activities. Nor does the complaint state that investment advice was rendered for a fee.

Furthermore, the Ohio Company was performing a ministerial task at the direction of the Halleys when it partially transferred the funds. The Ohio Company was not acting as an ERISA fiduciary when it transferred the funds because the act involved no discretion. See Zandi-Dulabi v. Pacific Retirement Plans, Inc. (N.D.Cal.1993), 828 F.Supp. 760. The complaint does not establish that the Ohio Company was acting as a fiduciary, so ERISA does not provide a cause of action for the claims asserted by appellant. See Schiffli Embroidery Workers Pen. Fund v. Ryan Beck (D.N.J.1994), 869 F.Supp. 278, 281, 284; Airparts Co., Inc. v. Custom Benefit Serv. of Austin, Inc. (C.A.10, 1994), 28 F.3d 1062.

Transferring the funds was not an act in the administration of the ERISA plan. See id. at 1066. Appellants made no claim based on any rights under the Pension Plan. The appellants' state-law claims do not even remotely affect the structure, the administration, or the type of benefits provided by the Pension Plan. These state-law claims were not designed to affect employee benefits. This case does not fit into any of the four situations where ERISA generally preempts state law.

The appellants' state-law claims involved areas of traditional state regulation. See Perry v. P*I*E Nationwide, Inc., supra; Airparts Co., supra. The appellants' claims will not have an effect on the relations among the principal ERISA entities--H. Myron Halley, M.D., Inc., the Pension Plan, H. Myron Halley, M.D. and Joan F. Halley. These ERISA entities are united in their efforts to secure redress from the Ohio Company. As discussed above, the Ohio Company was not shown to be a fiduciary. The effect of the state-law claims on the Pension Plan is incidental in nature, as the claims do not involve rights under the Plan.

We conclude that the appellants' claims have only a remote or peripheral effect on the employee benefit plan. There is no threat that, by allowing this suit to go forward, conflicting regulations will emerge which will destroy the uniform administrative scheme of ERISA. Patton v. Bearden (C.A.6, 1993), 8 F.3d 343. This action was not preempted by ERISA. The trial court erred in dismissing the complaint on the grounds that it lacked subject matter jurisdiction.

Accordingly, this assignment of error is sustained.

Appellants' second assignment of error states:

"The trial court erred in granting defendant-appellee's motion to dismiss for failure to state a claim upon which relief may be granted as a justiciable controversy existed between the parties and plaintiff-appellants are entitled to declaratory judgment."

There are only two reasons for dismissing a complaint for declaratory judgment before the court addresses the merits of the case: (1) there is neither a justiciable issue nor an actual controversy between the parties requiring speedy relief to preserve rights which may otherwise be lost or impaired; or (2) in accordance with R.C. 2721.07, the declaratory judgment will...