Pacific Airmotive Corp. v. First Interstate Bank

• Decision Date: 18 March 1986
• Citation: 224 Cal.Rptr. 233,178 Cal.App.3d 1130
• Court: California Court of Appeals Court of Appeals
• Parties: PACIFIC AIRMOTIVE CORPORATION, a Delaware Corporation, Plaintiff and Appellant, v. FIRST INTERSTATE BANK, a California Corporation, and Does 1 through 20, inclusive, Defendants and Respondents. B011060.

Page 233

224 Cal.Rptr. 233

178 Cal.App.3d 1130

PACIFIC AIRMOTIVE CORPORATION, a Delaware Corporation, Plaintiff and Appellant, v. FIRST INTERSTATE BANK, a California Corporation, and Does 1 through 20, inclusive, Defendants and Respondents.

B011060.

Court of Appeal, Second District, Division 7, California.

March 18, 1986.

Gibson, Dunn & Crutcher and Joseph P. Busch, III, and Eloise S. Hock, Newport Beach, for plaintiff and appellant.

James W. O'Neil, Peter G. Wheelon, Sherrill L. Johnson, Los Angeles, Reish & Davis, A Law Corp., Santa Monica, and Sullivan, Workman & Dee, Charles D. Cummings JOHNSON, Associate Justice.

Los Angeles, for defendants and respondents.

This is an action under state law by an employer against the trustee of its employee retirement plan for damages suffered by the employer because the trustee inaccurately reported the assets of the plan. The trial court sustained the trustee's demurrer to the complaint without leave to amend and dismissed the action on the ground the Employee Retirement Income Security Act (ERISA) gives the federal courts exclusive jurisdiction over the employer's claim. We reverse.

FACTS AND PROCEEDINGS BELOW

For purposes of appeal we accept as true the properly pleaded factual allegations of the complaint. (Lopez v. Southern California Rapid Transit Dist. (1985) 40 Cal.3d 780, 784, 221 Cal.Rptr. 840, 710 P.2d 907.) Furthermore, the allegations of the complaint must be liberally construed with a view to attaining substantial justice among the parties. (Thompson v. County of Alameda (1980) 27 Cal.3d 741, 746, 167 Cal.Rptr. 70, 614 P.2d 728.)

Plaintiff, Pacific Airmotive Corporation, (PAC) appointed defendant, First Interstate Bank (bank) trustee of its employee benefit plan pursuant to the requirement of ERISA that the assets of a plan be held in trust. (29 U.S.C. § 1103, subd. (a).) Under the terms of the trust agreement, the bank was required to render to PAC periodic reports of the plan's assets.

When PAC underwent a major reduction in its work force it entered into collective bargaining negotiations with the unions representing its employees. In reliance on the completeness and accuracy of the reports furnished by the bank, PAC determined the retirement plan had sufficient assets to provide the full value of accrued pensions to terminated employees. On the basis of this determination, PAC agreed with the terminated employees and their unions to full payment of accrued pensions under the plan. Subsequently, PAC learned the reports provided by the bank overstated the plan's assets by approximately $550,000. As a result, PAC was required to contribute an additional amount, approximately $130,000, to the retirement plan.

PAC sued the bank in superior court asserting state law claims of breach of contract and breach of fiduciary duty. The bank demurred on the grounds the state law claims were superseded by ERISA and, under ERISA, the federal courts have exclusive jurisdiction over any disputes arising between PAC and the bank under the trust agreement. As we noted above, the trial court agreed with the bank's contentions. Therefore, it sustained the bank's demurrer without leave to amend and dismissed the complaint.

STATEMENT OF THE ISSUE

The first task in this case is to properly frame the issue to be decided. This is not a suit for damages incurred by the employee benefit plan or any participant or beneficiary under the plan. It is not alleged the bank mismanaged the plan assets. Rather, PAC sued the bank under state law causes of action for breach of contract and breach of fiduciary duty for damages incurred by PAC, itself, as a result of the bank's failure to properly carry out reporting duties owed to PAC under the trust agreement.

The provisions of ERISA pertaining to employee benefits plans, "supersede any and all State laws insofar as they ... relate to any employee benefit plan...." (29 U.S.C., § 1144, subd. (a).

The issue we address is a narrow one. Do state laws authorizing a suit by a trustor against a trustee for damages to the trustor, personally, arising from the trustee's breach of reporting duties owed the trustor under the trust agreement "relate to [an] employee benefit plan" merely because the trust holds assets of an employee benefit plan?

If state laws are superseded by ERISA in this context then jurisdiction over their ERISA analogs, if any, lies exclusively in For the reasons set forth below, we hold PAC's state law claims are not preempted by ERISA. Therefore, the superior court has jurisdiction over these claims.

the federal courts. This [178 Cal.App.3d 1135] is so because, except for certain actions by plan participants and beneficiaries, the federal courts have exclusive jurisdiction over civil actions arising under an employee benefit plan covered by Title I of ERISA. (29 U.S.C., § 1132, subd. (e)(1); and see Johnson v. Transworld Airlines, Inc. (1983) 149 Cal.App.3d 518, 515, 196 Cal.Rptr. 896; Farrow v. Montgomery Ward Long Term Disability Plan (1986) 176 Cal.App.3d 648, 657, 222 Cal.Rptr. 325.)

DISCUSSION

In deciding whether ERISA preempts state law, our task is to ascertain Congress' intent in enacting the relevant ERISA provisions (Shaw v. Delta Air Lines, Inc. (1983) 463 U.S. 85, 95, 103 S.Ct. 2890, 2899, 77 L.Ed.2d 490) bearing in mind the presumption is against preemption particularly in areas traditionally left to state law. (Metropolitan Life Ins. Co. v. Massachusetts (1985) --- U.S. ----, ---- - ----, 105 S.Ct. 2380, 2389-90, 85 L.Ed.2d 728, 740-741.)

ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans. (Shaw v. Delta Air Lines, Inc., supra, 463 U.S. at p. 90, 103 S.Ct. at p. 2896.) This is explicit in the congressional findings and declarations of policy, (29 U.S.C. § 1001, subd. (a)) as well as numerous specific provisions of the act. ¹

Most relevant to our inquiry are the provisions relating to fiduciary duty and reporting requirements. "[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries...." (29 U.S.C. § 1104, subd. (a)(1).) "Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach...." (29 U.S.C. § 1109, subd. (a).) Each plan administrator is required to file with the Secretary of Labor and furnish to participants an annual report that includes a statement of the assets and liabilities of the plan. (29 U.S.C. § 1023, subds. (a)(1)(A), (b)(1), (2).)

Legislative history shows the preemption provision, too, was designed for the protection of plan participants and their beneficiaries. For example, one of the bill's sponsors observed, "With the preemption of the field, we round out the protection afforded participants by eliminating the threat of conflicting and inconsistent State and local regulation." (Comments of Representative Dent, quoted in Shaw v. Delta Air Lines, Inc., supra, 463 U.S. at p. 99, 103 S.Ct. at p. 2901.)

There is no indication in the act or its legislative history Congress had in mind the legal relationship between the trustor-employer and the trustee created by 29 U.S.C. § 1103 when it enacted the preemption provision, except as that legal relationship might affect the security and well-being of the plan participants.

It is now settled section 1144 does not preempt only state laws dealing with subject matters specifically covered by ERISA.

                It applies to any state law which regulates directly or indirectly the terms and conditions of employer benefit plans.  (29 U.S.C. § 1144, subd.  (c)(2);  Shaw v. Delta Air Lines, supra, 463 U.S. at pp. 98-100, 103 S.Ct. at pp. 2900-01;  Carpenters Health & Welfare Trust Fund v. Parnas Corp.  (1986) 176 Cal.App.3d 1196, 222 Cal.Rptr. 668.)   In Shaw, the Supreme Court stated a law "relates to" an employee benefit plan if it has "a connection with or reference to such a plan."   Thus, the court found state laws which dictated how employers structure their employee benefit plans clearly "relate to" such benefit plans.  (463 U.S. at p. 97, 103 S.Ct. at p. 2899.)   A state law prohibiting the offset of worker's compensation benefits against retirement pension benefits was held to be preempted by ERISA in Alessi v. Raybestos-Manhattan, Inc.  (1981) 451 U.S. 504, 101 S.Ct. 1895, 68 L.Ed.2d 402.   The court found the state law related to employee benefit plans, albeit indirectly, because it eliminated a method for calculating pension benefits permitted under ERISA.  (Id., at pp. 524-525, 101 S.Ct. at pp. 1906-1907.)
                

The high court has noted, however, some state laws may affect employee benefit plans in ways too tenuous, remote, or peripheral to warrant a finding the law "relates to" the plan. (Shaw, supra, 463 U.S. at p. 100, fn. 21, 103 S.Ct. at p. 2901, fn. 21.) In Franchise Tax Bd. v. Laborers Vacation Trust (1983) 463 U.S. 1, 25-26, 103 S.Ct. 2841, 2854-55, 77 L.Ed.2d 420, decided the same day as Shaw, the court held a suit filed in state court against the trustees of an employee benefit plan for failing to comply with levies under state law for unpaid taxes owed by trust beneficiaries was not of central concern to ERISA and, therefore, not preempted.

Lower federal court decisions have also recognized ERISA is not a talisman turning away every state law claim that touches a benefit plan. In Lane v. Goren (9th Cir.1984) 743 F.2d 1337 the court held ERISA did not preempt the authority of a state agency to remedy discriminatory employment practices merely because the alleged discrimination occurred in a program funded under an ERISA employee benefit plan. The actions of the agency applied to the employer in its capacity as employer, and in the same way all other employers are affected....