In re Coyne Elec. Contractors, Inc.
| Decision Date | 10 January 2000 |
| Docket Number | Bankruptcy No. 98 B 20787(ASH). Adversary No. 98-5191A. |
| Citation | 244 BR 245 |
| Parties | In re COYNE ELECTRICAL CONTRACTORS, INC., Debtor. Coyne Electrical Contractors, Inc., Plaintiff, v. The United States of America, et al. [including A-J Contracting Company, Inc.], Defendants. A-J Contracting Company, Inc., Third-Party Plaintiff, v. Alex Brown & Sons Incorporated, American Management Systems, Kellner DiLeo & Co., Third-Party Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Proskauer Rose LLP, By Sally L. Schneider, New York, for The Joint Industry Board of The Electrical Industry and Its Participating Funds.
Fritz & Miller, P.C., By Maranda E. Fritz, New York, for A-J Contracting Company, Inc.
DECISION ON APPLICATION FOR PAYMENT UNDER LIEN LAW SECTION 71(2)(d)
At issue before me on the instant application is whether a New York Lien Law "trust fund" beneficiary's claim to priority payment of statutory trust fund amounts pursuant to Lien Law Section 71(2)(d) is preempted under Sections 514(a) and 502(a) of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. ("ERISA"). The disputants are The Joint Industry Board of the Electrical Industry and its Participating Funds ("JIB"), who claim a priority right to payment pursuant to Lien Law Section 71(2)(d) from a pool of funds held by the debtor, and A-J Contracting, Inc. ("A-J"), a competing claimant who challenges JIB's priority assertion on the ground that ERISA preempts JIB from asserting such a priority as an "alternative enforcement mechanism." As discussed below, I find that ERISA does not preempt JIB's assertion of priority under Section 71(2)(d) of the Lien Law.
This Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(a) and 157(a) and the "Standing Order of Referral of Cases to Bankruptcy Judges" of the United States District Court for the Southern District of New York, dated July 10, 1984 (Ward, Acting C.J.). This adversary proceeding is a core proceeding under 28 U.S.C. § 157(b).
The facts underlying this application have been stipulated by JIB and A-J. A-J is a construction firm which contracted with Kellner DiLeo & Co., Alex Brown & Sons Incorporated and American Management Systems, respectively, to renovate office space on three separate projects (collectively, the "Three Projects"). A-J then subcontracted the electrical portion of this work to the debtor, and A-J was paid a total of $435,136 on account of the electrical work performed by the debtor on the Three Projects.
A-J also subcontracted electrical work to the debtor on an unrelated project (the "Concourse Project") which the debtor abandoned, forcing A-J to hire substitute subcontractors to complete the Project. A-J withheld the amounts payable to the debtor from the Three Projects on account of the losses it incurred in the Concourse Project. On September 16, 1999 this Court ruled that A-J is entitled to set off its $407,716 Concourse Project claim against the debtor's Three Projects' claims aggregating $435,136 against A-J, which would leave a balance of only $27,420 due from A-J to the debtor. However, the September 16 decision limits A-J's right of setoff to the extent of "any possible Lien Law obligation which the debtor may have to any of its obligees on account of the three projects." The reason for this limitation is that, under the requirement of "mutuality" for setoff, A-J may not set off its debt to the debtor against the debtor's entitlement from A-J to the extent that third parties have rights in that entitlement that are superior to that of the debtor (e.g., by reason of the Lien Law). A-J's setoff is therefore contingent upon the existence and validity of any Lien Law claims arising from the Three Projects.
JIB asserts just such a Lien Law claim. JIB's claim against the debtor arises as follows: The debtor was a member of the New York Electrical Contractors Association, Inc., which serves as the collective bargaining agent with the I.B.E.W. Local Union No. 3, AFL-CIO, and is obligated to pay certain benefits under the collective bargaining agreement with the union. The debtor employed union members on one of the Three Projects, the Alex Brown & Sons project. It is undisputed that the debtor is liable to JIB with respect to the Alex Brown & Sons project in the amount of $238,164.71 for unpaid benefits.
A-J and JIB do not dispute that the amounts received by A-J on account of the debtor's work on the Three Projects are "trust funds" within the meaning of the Lien Law. Neither does A-J contest that JIB has status as a lien law beneficiary. A-J does assert that JIB's assertion of priority with respect to its claim is preempted by ERISA.
"This is another Employee Retirement Income Security Act of 1974 (ERISA) preemption case." De Buono v. NYSA-ILA Medical and Clinical Services Fund, 520 U.S. 806, 808, 117 S.Ct. 1747, 138 L.Ed.2d 21 (1997). That the phrase "ERISA preemption" has become the poster child of federal litigation can be gleaned from the first footnote in the De Buono decision, noting (as of 1997) thirteen Supreme Court decisions on this issue since 1981 and as of 1992, over 2,800 opinion in the lower courts. This decision is yet another.
While the topic of ERISA preemption in and of itself comprises a substantial body of law, it is helpful to review the function and development of federal preemption doctrine generally before turning to the particular operation of ERISA preemption. Congressional power to preempt state law derives from the Supremacy Clause under Article VI of the Federal Constitution. Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 208, 105 S.Ct. 1904, 85 L.Ed.2d 206 (1985), citing Gibbons v. Ogden, 9 Wheat. 1, 22 U.S. 1, 6 L.Ed. 23 (1824). "The question whether a certain state action is preempted by federal law is one of congressional intent. "`The purpose of Congress is the ultimate touchstone."'" Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987). See also Allis-Chalmers, 471 U.S. at 207, 105 S.Ct. 1904; Malone v. White Motor Corp., 435 U.S. 497, 504, 98 S.Ct. 1185, 55 L.Ed.2d 443 (1978); Retail Clerks v. Schermerhorn, 375 U.S. 96, 103, 84 S.Ct. 219, 11 L.Ed.2d 179 (1963).
The congressional purpose may be evidenced in several ways. The scheme of federal regulation may be so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it. Pennsylvania R. Co. v. Public Service Comm\'n, 250 U.S. 566, 569, 40 S.Ct. 36, 63 L.Ed. 1142; Cloverleaf Butter Co. v. Patterson, 315 U.S. 148, 62 S.Ct. 491, 86 L.Ed. 754. Or the Act of Congress may touch a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject. Hines v. Davidowitz, 312 U.S. 52, 61 S.Ct. 399, 85 L.Ed. 581. Likewise, the object sought to be obtained by the federal law and the character of obligations imposed by it may reveal the same purpose.
Ray v. Atlantic Richfield Co., 435 U.S. 151, 157, 98 S.Ct. 988, 55 L.Ed.2d 179 (1978) (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 91 L.Ed. 1447 (1947)). This style of preemption is the familiar "field preemption." Even in the absence of field preemption, specific or "conflict" preemption may occur. Thus, where:
. . . Congress has not completely foreclosed state legislation in a particular area, a state statute is void to the extent that it actually conflicts with a valid federal statute. A conflict will be found "where compliance with both federal and state regulations is a physical impossibility . . .," Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963), or where the state "law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941); Jones v. Rath Packing Co., 430 U.S. 519, 526, 540-541 , 97 S.Ct. 1305, 51 L.Ed.2d 604 (1977). Accord, De Canas v. Bica, 424 U.S. 351, 363, 96 S.Ct. 933, 47 L.Ed.2d 43 (1976).
Ray v. Atlantic Richfield Co., 435 U.S. at 158, 98 S.Ct. 988. See also, Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 248, 104 S.Ct. 615, 78 L.Ed.2d 443 (1984) .
Such "pre-emption may be either express or implied, and `is compelled whether Congress' command is explicitly stated in the statute's language or implicitly contained in its structure and purpose.'" Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 738, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985). See also, Rath Packing, 430 U.S. at 525, 97 S.Ct. 1305; Fidelity Federal Savings & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 152-153, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 95, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983).
Nevertheless, the Supreme Court has recognized inherent limitations in the preemption doctrine:
As is always the case in our pre-emption jurisprudence, where "federal law is said to bar state action in fields of traditional state regulation, . . . we have worked on the `assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.\'"
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