Johnson v. Watts Regulator Co.

Citation63 F.3d 1129
Decision Date06 June 1995
Docket NumberNo. 95-1002,95-1002
PartiesPens. Plan Guide P 23912P James JOHNSON, Plaintiff, Appellee, v. WATTS REGULATOR COMPANY, et al., Defendants, Appellants. . Heard
CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)

Eleanor H. MacLellan, with whom Sean M. Dunne, Ross M. Weisman, and Sulloway & Hollis were on brief, Concord, NH, for appellants.

Christopher J. Seufert, with whom Seufert Professional Association was on brief, Franklin, NH, for appellee.

Before SELYA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and CYR, Circuit Judge.

SELYA, Circuit Judge.

This appeal requires us to address, for the first time, a "safe harbor" regulation promulgated by the Secretary of Labor (the Secretary) as a means of exempting certain group insurance programs from the strictures of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Secs. 1001-1461. Determining, as we do, that the district court appropriately applied the regulation, and discerning no clear error in the court's factual findings on other issues in the case, we affirm the judgment below. 1994 WL 587801.

I. BACKGROUND

Plaintiff-appellee James Johnson worked as a forklift operator at the Webster Valve division of defendant-appellant Watts Regulator Co. (Watts) in Franklin, New Hampshire. While so employed, plaintiff elected to participate in a group insurance program made available to Watts' employees by defendant-appellant CIGNA Employee Benefit Company d/b/a Life Insurance Company of North America (CIGNA). Under the program plaintiff received insurance protection against accidental death, dismemberment, and permanent disability. He paid the premium through a payroll deduction plan. Watts, in turn, remitted the premium payments to CIGNA.

On June 15, 1990, while a participant in the program, plaintiff sustained a severe head injury in a motorcycle accident. He remained disabled for the ensuing year, and, having crossed the policy's temporal threshold, he applied for benefits on July 17, 1991. CIGNA turned him down, claiming that he retained the residual capacity to do some work. Plaintiff then sued Watts and CIGNA in a New Hampshire state court. Postulating the existence of an ERISA-related federal question, the defendants removed the action to the district court.

Following an evidentiary hearing, the district court ruled that ERISA did not pertain. See Johnson v. Watts Regulator Co., No. 92-508-JD, 1994 WL 258788 (D.N.H. May 3, 1994). Nevertheless, the court denied plaintiff's motion to remand, noting diverse citizenship and the existence of a controversy in the requisite amount. See 28 U.S.C. Sec. 1332(a). The parties subsequently tried the case to the bench. The judge heard the evidence, perused the group policy, applied New Hampshire law, found plaintiff to be totally and permanently disabled, and awarded the maximum benefit, together with attorneys' fees and costs. See Johnson v. Watts Regulator Co., No. 92-508-JD, 1994 WL 587801 (D.N.H. Oct. 26, 1994). This appeal ensued.

II. THE ERISA ISSUE

The curtain-raiser question in this case involves whether the program under which Johnson sought benefits is subject to Title I of ERISA. Confronting this issue requires that we interpret and apply the Secretary's safe harbor regulation, 29 C.F.R. Sec. 2510.3-1(j) (1994). We divide this part of our analysis into four segments. First, we explain why the curtain-raiser question matters. Second, we limn the applicable standard of review. Third, we discuss the regulation itself and how it fits into the statutory and regulatory scheme. Fourth, we scrutinize the record and test the district court's conclusion that the program is within the safe harbor.

A. The ERISA Difference.

From the earliest stages of the litigation, a controversy has raged over the relationship, if any, between ERISA and the group insurance program underwritten by CIGNA. This controversy stems from perceived self-interest: if ERISA applies, preemption is triggered, see 29 U.S.C. Sec. 1144(a), and, in many situations, the substitution of ERISA principles (whether derived from the statute itself or from federal common law) for state-law principles can make a pronounced difference. For example, ERISA preemption may cause potential state-law remedies to vanish, see, e.g., Carlo v. Reed Rolled Thread Die Co., 49 F.3d 790, 794 (1st Cir.1995); McCoy v. Massachusetts Inst. of Technology, 950 F.2d 13, 18 (1st Cir.1991), cert. denied, 504 U.S. 910, 112 S.Ct. 1939, 118 L.Ed.2d 545 (1992), or may change the standard of review, see, e.g., Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 956-57, 103 L.Ed.2d 80 (1988), or may affect the admissibility of evidence, see, e.g., Taft v. Equitable Life Assurance Society F.3d 1469, 1471-72 (9th Cir.1993), or may determine whether a jury trial is available, see, e.g., Blake v. Unionmutual Stock Life Ins. Co., 906 F.2d 1525, 1526 (11th Cir.1990).

We are uncertain which of these boggarts has captured the minds of the protagonists in this case. But exploring that question does not strike us as a prudent use of scarce judicial resources. Given the marshalled realities--the parties agree that the ERISA difference is of potential significance here; they successfully persuaded the district court to that view; and it is entirely plausible under the circumstances of this case that the applicability vel non of ERISA makes a meaningful difference--we refrain from speculation about the parties' tactical goals and proceed directly to a determination of whether the court below correctly concluded that state law provides the rule of decision.

B. Standard of Review.

The question of whether ERISA applies to a particular plan or program requires an evaluation of the facts combined with an elucidation of the law. See, e.g., Kulinski v. Medtronic Bio-Medicus, Inc., 21 F.3d 254, 256 (8th Cir.1994) (explaining that the existence of an ERISA plan is a mixed question of fact and law); Peckham v. Gem State Mut., 964 F.2d 1043, 1047 n. 5 (10th Cir.1992) (similar). For purposes of appellate review, mixed questions of fact and law ordinarily fall along a degree-of-deference continuum, ranging from plenary review for law-dominated questions to clear-error review for fact-dominated questions. See In re Extradition of Howard, 996 F.2d 1320, 1327-28 (1st Cir.1993). Plenary review is, of course, nondeferential, whereas clear-error review is quite deferential. See id. Both standards are in play here.

The interpretation of a regulation presents a purely legal question, sparking de novo review. See, e.g., Strickland v. Commissioner, Me. Dep't of Human Serv., 48 F.3d 12, 16 (1st Cir.1994); Liberty Mut. Ins. Co. v. Commercial Union Ins. Co., 978 F.2d 750, 757 (1st Cir.1992). Once the meaning of the regulation has been clarified, however, the "mixed" question that remains--the regulation's applicability in a given case--may require factfinding, and if it does, that factfinding is reviewed only for clear error. To that extent, the existence of an ERISA plan becomes primarily a question of fact. See Wickman v. Northwestern Nat'l Ins. Co., 908 F.2d 1077, 1082 (1st Cir.), cert. denied, 498 U.S. 1013, 111 S.Ct. 581, 112 L.Ed.2d 586 (1990); Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489, 492 (9th Cir.1988), cert. denied, 492 U.S. 906, 109 S.Ct. 3216, 106 L.Ed.2d 566 (1989).

C. Statutory and Regulatory Context.

Congress enacted ERISA to protect the interests of participants in employee benefit plans (including the interests of participants' beneficiaries). See 29 U.S.C. Sec. 1001(a) & (b); see also Curtiss-Wright Corp. v. Schoonejongen, --- U.S. ----, ----, 115 S.Ct. 1223, 1230, 131 L.Ed.2d 94 (1995); Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 15-16, 107 S.Ct. 2211, 2219-20, 96 L.Ed.2d 1 (1987). ERISA safeguards these interests in a variety of ways, e.g., by creating comprehensive reporting and disclosure requirements, see 29 U.S.C. Secs. 1021-1031, by setting standards of conduct for fiduciaries, see id. Secs. 1101-1114, and by establishing an appropriate remedial framework, see id. Secs. 1131-1145. An integral part of the statutory scheme is a broadly worded preemption clause that, in respect to covered employee benefit plans, sets to one side "all laws, decisions, rules, regulations, or other State action having the effect of law, of any State." Id. Sec. 1144(a). The purpose of the preemption clause is to enhance the efficient operation of the federal statute by encouraging uniformity of regulatory treatment through the elimination of state and local supervision over ERISA plans. See Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142, 111 S.Ct. 478, 484-85, 112 L.Ed.2d 474 (1990); McCoy, 950 F.2d at 18.

For an employee welfare benefit plan or program to come within ERISA's sphere of influence, it must, among other things, be "established or maintained" by an employer, 1 an employee organization, or both. See 29 U.S.C. Sec. 1002(1); see also Wickman, 908 F.2d at 1082 (enumerating necessary components of an ERISA plan); Donovan v. Dillingham, 688 F.2d 1367, 1370 (11th Cir.1982) (en banc) (same). The parties agree that the group insurance program that CIGNA wrote for Watts' employees, covering accidental death, dismemberment, and permanent disability, qualifies as a "program" of employee welfare benefits as that term is used in the statute. See generally 29 U.S.C. Sec. 1002(1). Hence, the ERISA question reduces to whether the program is one "established or maintained" by an employer.

To address this very requirement, the Secretary of Labor, pursuant to 29 U.S.C. Sec. 1135 (authorizing the Secretary to promulgate interpretive regulations in the ERISA milieu), promulgated a safe harbor regulation describing when (and to what extent) an employer or a trade union may be involved with an employee welfare benefit program without being deemed to have "established or maintained" it. See 40 Fed.Reg. 34,527 (1975) (expla...

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