Powell v. Chesapeake and Potomac Telephone Co. of Virginia

Citation780 F.2d 419
Decision Date18 December 1985
Docket NumberNo. 85-1072,85-1072
Parties6 Employee Benefits Ca 2754 Eleanor POWELL, Appellant, v. CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF VIRGINIA; Connecticut General Life Insurance Company, a Cigna Company, and American Telephone and Telegraph, Inc., a New York Corporation, Appellees. and AT & T Communications of Virginia, Inc., Defendant.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

Diane H. Mahshie (James R. Tate, Tate & Bywater, Ltd., Vienna, Va., on brief), for appellant.

Jeffrey Anne Tatum (Adams, Duque & Hazeltine, Los Angeles, Cal., on brief), Stephen M. Colangelo (Boothe, Prichard & Dudley, Rodney H. Glover, Thomas & Fiske, Alexandria, Va., on brief), for appellees.

Before WIDENER and PHILLIPS, Circuit Judges, and HILTON, United States District Judge for the Eastern District of Virginia, sitting by designation.

JAMES DICKSON PHILLIPS, Circuit Judge:

Eleanor Powell, a former employee of C & P Telephone Company of Virginia (C & P) and a beneficiary under its self-funded employee benefit plan (the Plan), sued that company, its former parent, AT & T, and Connecticut General Life Insurance Company (Connecticut General), the Plan's administrator, for the breach of various fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Sec. 1001 et seq., in the handling of her claim for disability benefits. 1 Although she had received all of the benefits to which she was entitled, Powell sought $5 million in extracontractual and punitive damages under ERISA, and also sought to invoke the court's pendent jurisdiction over Virginia state law claims for intentional infliction of emotional distress, breach of an implied covenant of good faith and fair dealing, breach of contract, and violation of Virginia's Unfair Trade Practices Act, Va.Code Sec. 38.1-49, et seq. (1950), based on the same alleged misconduct as gave rise to her federal cause of action under ERISA. The district court granted the defendants' motions for summary judgment and dismissed all of Powell's claims. We agree with the district court that Powell's state law claims are preempted by ERISA, and that extracontractual and punitive damages are not, in these circumstances, available under ERISA, and we therefore affirm.

I

Powell received disability benefits under the Plan from February 1978 through May 1983. She complains of constant harassment by C & P and Connecticut General throughout this period, causing her and her son emotional distress and precipitating her divorce. According to Powell, the appellees repeatedly demanded unnecessary medical reports, refused to provide her attorney with copies of her claim file, and unjustifiably withheld benefit payments on two occasions.

Powell's benefits were terminated in June 1983, after she received a substantial Social Security award, which represented monthly benefits retroactive to July 1977. When combined with the Social Security award, Powell's Plan benefits exceeded 50% of her base pay prior to disability, the benefits ceiling under the Plan. Powell refused C & P's request to refund the overpayment.

Thereafter, Powell filed this action and the defendants counterclaimed for a refund of benefits. The counterclaim was nonsuited after Powell's complaint was dismissed, and this appeal followed.

II
A. Preemption of State Law Claims.

With certain stated exceptions, 2 ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" governed by ERISA. 29 U.S.C. Sec. 1144(a). "State law" is defined to include "all laws, decisions, rules, regulations, or other State action having the effect of law, of any State." 29 U.S.C. Sec. 1144(c)(1).

In Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 2899-1900, 77 L.Ed.2d 490 (1983), the Supreme Court, citing legislative history and referring to the language and structure of the statute, construed the preemption clause in its broadest sense, and held that "[a] law 'relates to' an employee benefit plan ... if it has a connection with or reference to such a plan." Thus, the scope of Sec. 1144(a) is not limited to state laws "specifically designed to affect employee benefit plans." Id. at 98, 103 S.Ct. at 2900.

The state laws at issue in Shaw, the New York Human Rights Law (prohibiting discrimination in employment, including discrimination in employee benefit plans on the basis of pregnancy), and New York's Disability Benefits Law (requiring employers to pay sick-leave benefits to employees unable to work due to pregnancy), "clearly 'relate to' " employee benefit plans. Id. at 97, 103 S.Ct. at 2900. The Court observed, however, that some state actions may affect employee benefits plans in "too tenuous, remote, or peripheral a manner to warrant a finding that the law 'relates to' the plan." Id. at 100, n. 21, 103 S.Ct. at 2901, n. 21. This category includes, for example, state garnishment of a spouse's pension income to enforce alimony and support orders. Id., citing American Telephone and Telegraph Co. v. Merry, 592 F.2d 118 (2d Cir.1979).

In this case, none of the state laws under which Powell claims relief have any intrinsic connection with employee benefit plans. The question is therefore whether state law claims which relate to the administration of an ERISA-governed plan, but which arise under general state laws which themselves have no impact on employee benefit plans, are within the scope of ERISA preemption. Given the "unparalleled breadth" of the preemption clause, Holland v. Burlington Industries, Inc., 772 F.2d 1140, 1147 (4th Cir.1985), and the broad remedial policy of ERISA, we hold that state laws, insofar as they are invoked by beneficiaries claiming relief for injuries arising out of the administration of employee benefit plans, "relate to" such plans and, absent an applicable exemption, are preempted by ERISA.

The preemption clause effectuates a broad remedial policy to protect the interests of participants in ERISA-governed plans and their beneficiaries "by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts." 29 U.S.C Sec. 1001(b). Thus, ERISA imposes extensive duties on plan administrators, 29 U.S.C. Secs. 1101-1114, and provides a comprehensive scheme for the criminal and civil enforcement of fiduciary obligations, 29 U.S.C. Secs. 1131-1132. 3 To the extent that ERISA redresses the mishandling of benefits claims or other maladministration of employee benefit plans, it preempts analogous causes of action, whatever their form or label under state law. See Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208, 1215-16 (8th Cir.1981) ("If Congress has already provided a remedy [under ERISA], ... the state law is preempted, regardless of whether or not a conflict exists which involves a direct interference by the state law with [ERISA]."). A contrary rule would undermine ERISA's important policy of promoting uniformity in employee benefit laws, reflected in the legislative history, in the Act's declaration of policy, and in the preemption clause itself, by creating the "potential ... for conflicting employer obligations and variable standards of recovery." Holland, at 1147. Accordingly, the state law claims in this case, all of which relate exclusively to alleged breaches of fiduciary responsibility in the administration of C & P's employee benefit plan, "relate to" the plan and, unless an exception applies, are preempted, leaving Powell to such remedies as are available under ERISA.

This analysis comports with several recent Ninth Circuit decisions in which that court concluded that state claims based on the maladministration of employee benefit plans are preempted by ERISA, even where the state statutory and common law under which the claims arise bears no inherent connection with ERISA-governed plans. See Ellenburg v. Brockway, Inc., 763 F.2d 1091, 1095 (9th Cir.1985); Scott v. Gulf Oil Corp., 754 F.2d 1499, 1504-05 (9th Cir.1985); Blau v. Del Monte Corp., 748 F.2d 1348, 1356 (9th Cir.1984); Russell v. Massachusetts Mutual Life Insurance Co., 722 F.2d 482, 487-88 (9th Cir.1983), rev'd on other grounds, --- U.S. ----, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985). See also Gilbert v. Burlington Industries, Inc., 765 F.2d 320, 327 (2d Cir.1985).

Powell contends that even if her state law claims are within the scope of ERISA's preemption provision, her claims for breach of an implied covenant of good faith and fair dealing and for violations of the Virginia Unfair Trade Practices Act, both of which purport to impose duties on insurers, 4 are nevertheless rescued from preemption by an "insurance saving clause," which provides that ERISA does not "exempt or relieve any person from any law of any State which regulates insurance...." 29 U.S.C. Sec. 1144(b)(2)(A). We disagree. The insurance saving clause is limited by the so-called "deemer clause," which provides that no employee benefit plan "shall be deemed to be an insurance company or other insurer ... or to be engaged in the business of insurance ... for purposes of any law of any State purporting to regulate insurance companies [or] insurance contracts...." 29 U.S.C. Sec. 1144(b)(2)(B). Thus, C & P cannot be deemed to be an insurer or otherwise engaged in the business of insurance by virtue of its sponsorship of the Plan and Powell's claims against C & P under state laws regulating insurance are not exempted from preemption by the insurance saving clause.

Since Connecticut General is not an "employee benefit plan," the deemer clause is inapplicable to it. See 29 U.S.C. Sec. 1144(b)(2)(B). Powell contends that as an insurance company, Connecticut General is subject to state laws regulating insurance, including the implied covenant of good faith and fair dealing and the Virginia Unfair Trade Practices Ac...

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