Perry v. P*I*E Nationwide Inc.

• Decision Date: 10 April 1989
• Docket Number: No. 87-6321,87-6321
• Citation: 872 F.2d 157
• Parties: Page 157 872 F.2d 157 57 USLW 2603, 4 Indiv.Empl.Rts.Cas. 658, 10 Employee Benefits Ca 2503 Bobby Wayne PERRY, Philip Anthony Eddie, Ernest Cordell Jones, James A. Mathis, and Gary R. Hyder, Plaintiffs-Appellees, v. P*I*E NATIONWIDE, INC., Defendant-Appellant. United States Court of Appeals, Sixth Circuit
• Court: U.S. Court of Appeals — Sixth Circuit

Page 157

872 F.2d 157

57 USLW 2603, 4 Indiv.Empl.Rts.Cas. 658,

10 Employee Benefits Ca 2503

Bobby Wayne PERRY, Philip Anthony Eddie, Ernest Cordell Jones, James A. Mathis, and Gary R. Hyder Plaintiffs-Appellees v P*I*E NATIONWIDE, INC., Defendant-Appellant.

No. 87-6321.

United States Court of Appeals Sixth Circuit.

Argued Sept. 26, 1988.

Decided April 10, 1989.

Rehearing and Rehearing En Banc Denied May 25, 1989.

Peter Reed Corbin (argued), Corbin & Dickinson, John E. Duvall, Jacksonville, Fla., Thomas M. Donnell, Jr., Stewart Estes & Donnell, Nashville, Tenn., for defendant-appellant.

R. Steven Waldron, R. Steven Waldron & Associates, Murfreesboro, Tenn., John D. Schwalb (argued), Brewer, Krause, & Brooks, Nashville, Tenn., for plaintiffs-appellees.

Before WELLFORD and NELSON, Circuit Judges, and McQUADE ^*, District Judge.

WELLFORD, Circuit Judge.

This case comes to us on appeal from the district court's denial of defendant P*I*E Nationwide, Inc.'s (P*I*E) motion to dismiss this action of five plaintiffs based on a common law claim of alleged fraudulent inducement in obtaining their participation in an employees' benefit plan. P*I*E's motion was based on the defense that the state law claims were preempted by reason of 29 U.S.C. Sec. 1144(a), Sec. 514(a) of ERISA. Plaintiffs sued defendant in the district court at Nashville based on diversity of citizenship because defendant was a Florida corporation qualified to do business in Tennessee. The complaint asserted that defendant wrongfully induced plaintiffs to participate in an employee stock investment plan (SIP). Plaintiffs also alleged that their participation was obtained through fraud, coercion, misrepresentation, promissory estoppel, lack of consideration, and breach of fiduciary duty. Plaintiffs requested rescission or damages. P*I*E sought to dismiss because the plan was an employee stock ownership plan (ESOP) as contemplated under Sec. 407(d)(6) of ERISA, 29 U.S.C. Sec. 1107(d)(6), ¹ and the Internal Revenue Code, 26 U.S.C. Sec. 4975(e)(7).

The factual background of this controversy is essentially undisputed. P*I*E is a long-distance motor carrier operating throughout the United States and in part of Canada. In the fall of 1985, when the SIP came into being, P*I*E had approximately 11,000 employees and maintained over 300 truck terminals. It had experienced over $90,000,000 in operating losses during 1984 and the first half of 1985. The company was, to say the least, in "dire economic straits." In an effort to improve its weak financial condition, P*I*E offered the SIP, which was "designed to enable employees to acquire stock ownership in the Company, and to provide employees who participated with the opportunity to accumulate capital for their future economic security." The SIP was "expressly subject" to ERISA. ² Defendant issued a lengthy prospectus which was filed with the Securities and Exchange Commission. All eligible employees were given a fifteen-page plan outline which summarized the "material contained in [the aforesaid SIP] prospectus." ³ To participate in the SIP, an employee had to agree to accept an "irrevocable 15 percent reduction in wages or salary from the start of the program through December 31, 1990." ⁴

Plaintiffs were stationed at the Nashville P*I*E terminal, and all but one (Eddie) had more than ten years experience. Between September and November 1985, each signed an agreement to participate in the SIP, which contained the following provision:

I understand and agree that participation in the Compensation Program means that my wages or salary (as now or hereafter in effect) will be reduced by 15 percent beginning on the date the Compensation Program becomes effective, continuing through December 31, 1990.

I acknowledge receipt of a Prospectus relating to the offering of Ryder/P*I*E Common Stock under the Stock Investment Plan and the Compensation Program.

I elect to participate in the Compensation Program and in the Stock Investment Plan of Ryder/P*I*E Nationwide, Inc. ⁵

P*I*E was sold to Maxitron, Inc. on January 1, 1986, just a few months after plaintiffs elected to join the SIP. Approximately 85% of eligible employees had similarly elected to join the SIP, which became effective December 31, 1985. ⁶ "The wage reduction election could not be revoked or changed during participation," and was "intended to be irrevocable." ⁷ Plaintiffs claim that they were told by P*I*E representatives that the company would close because of its poor financial condition if employees did not participate in the SIP and that "[d]efendant corporation under no circumstances would be sold." ⁸ The SIP, however, contained one provision indicating that no representations, beyond those in the prospectus itself, were authorized, and another provision referring to a possible sale of P*I*E stock. Plaintiffs concede that the SIP contained participation, funding, and vesting requirements "as provided in ERISA," and the district court found that the SIP qualified under ERISA. Plaintiffs did not seek to exhaust their administrative remedies under the SIP before bringing suit in the district court.

Defendant's motion to dismiss, based upon ERISA preemption, was referred to a magistrate, who recommended that it be denied. He concluded that the cause of action related to "the manner in which this defendant procured the plaintiffs' agreements to withhold money from their pay" rather than "to the administration of the ESOP," or to "benefits under the stock option plan." ⁹ He also stated that "Sec. 1144(a) does not apply to the common law causes of action to determine whether or not the plaintiffs were coerced by fraud or misrepresentation to join the benefit plan." ¹⁰

The district court agreed with the magistrate's recommendation, and held that "[p]reemption by ERISA only applies once the benefit plan is in existence," and does not apply to alleged common law actions of fraud or misrepresentation "to get the plaintiffs to join the plan." ¹¹ Judge Higgins also held that "Section 1132(a) is not applicable to this action," because it does not "deal with an administrator's or fiduciary's duties or breach of duties under the plan." ¹²

It is clear that the Supreme Court has given ERISA a broad construction with respect to its preemptive effect on state law and state actions that "relate to" an employment benefit Plan. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983); Mackey v. Lanier Collection Agency & Service, Inc., --- U.S. ----, 108 S.Ct. 2182, 2185, 100 L.Ed.2d 836 (1988); Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 45-46, 107 S.Ct. 1549, 1551-52, 95 L.Ed.2d 39 (1987) (observing that "the express pre-emption provisions of ERISA are deliberately expansive"). We have held, consistent with this interpretation, that "Congress used 'relate to' in its broadest sense." Authier v. Ginsberg, 757 F.2d 796, 800 (6th Cir.) (citing Shaw, 463 U.S. at 98, 103 S.Ct. at 2900), cert. denied, 474 U.S. 888, 106 S.Ct. 208, 88 L.Ed.2d 177 (1985); see also Holland v. Burlington Industries, Inc., 772 F.2d 1140, 1147 (4th Cir.1985) (stating that Sec. 1144(a) is a section of "unparallelled breadth"), aff'd, 477 U.S. 901, 106 S.Ct. 3267, 91 L.Ed.2d 559 (1986). Whether plaintiffs' cause of action for what amounts to a fraudulent procurement of their consent to participate in the SIP is sufficiently related to the plan itself, or whether the relation, if any, is "too tenuous, remote, or peripheral a matter to warrant a finding that the [action] 'relates to' the plan," is the question before us. Shaw, 463 U.S. at 100 n. 21, 103 S.Ct. at 2901 n. 21.

ERISA makes clear that even indirect state action bearing on private pensions may encroach upon the area of exclusive federal concern. .... ERISA's authors clearly meant to preclude the States from avoiding through form the substance of the preemption provision.

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 525, 101 S.Ct. 1895, 1907, 68 L.Ed.2d 402 (1981).

After discussing Scott v. Gulf Oil Corp., 754 F.2d 1499 (9th Cir.1985), the district court cited it as "finding that if an individual is neither a participant nor beneficiary then he does not fall within the sphere of ERISA." ¹³ Because the purported misconduct of P*I*E occurred before plaintiffs became participants or beneficiaries, and because they were not suing for benefits under the plan, the district court held that preemption did not apply. Scott concerned the employees' loss of severance and "prospective" benefits after Gulf sold the refinery to another company which agreed to continue the employment of former Gulf Oil employees. Id. at 1505. "The conduct giving rise to the claim was the negotiation of an employment contract which prevented the existence of an employee benefit plan." Id. The Scott court held that the plaintiffs' state law claims were not preempted because they did "not raise any issues concerning the matters regulated by ERISA." Id. "The issues raised by the claim," stated the court, "are not different than those that would be raised by a claim that Gulf had conspired with [the buyer] to accept ... lower wages, a claim that would clearly not be preempted by ERISA." Id. The court also indicated that the plaintiffs' claim for prospective benefits was closely analogous to the claim in Freeman v. Jacques Orthopaedic & Joint Implant Surgery Medical Group, Inc., 721 F.2d 654 (9th Cir.1983), in which an employee brought an action alleging that his employer fraudulently induced him to waive his right to participate in a pension plan. The Freeman court held that plaintiff's action could not be maintained under ERISA because the plaintiff, having waived participation in the plan, was not a "participant or beneficiary" as required by statute. The court also held that because the damages sought by the plaintiff were not "benefits under a plan," they could not be awarded in an ERISA action.

The district court also cited ...