Ram Technical Services, Inc. v. Koresko

• Jurisdiction: Oregon
• Court: Oregon Supreme Court
• Writing for the Court: Kistler
• Citation: Ram Technical Services, Inc. v. Koresko, 346 Or 215, 208 P.3d 950 (Or. 2009)
• Decision Date: 29 May 2009
• Docket Number: CA A130143,,SC S055865).,(CC CV04100199.
• Parties: RAM TECHNICAL SERVICES, INC., an Oregon corporation; Charles Stalnaker and Susan Stalnaker, Petitioners on Review, v. John J. KORESKO; Ram Technical Services Voluntary Employees' Beneficiary Association; Regional Employers' Assurance Leagues Voluntary Employees' Beneficiary Association; and Pennmont Benefit Services, Inc., a Pennsylvania corporation, Respondents on Review, and Great Southern Life Insurance Company, a Texas corporation; The Corben Education Services, Inc., an Oregon corporation; and Thomas W. Crosswhite, Respondents on Review.

208 P.3d 950

346 Or. 215

RAM TECHNICAL SERVICES, INC., an Oregon corporation; Charles Stalnaker and Susan Stalnaker, Petitioners on Review, v. John J. KORESKO; Ram Technical Services Voluntary Employees' Beneficiary Association; Regional Employers' Assurance Leagues Voluntary Employees' Beneficiary Association; and Pennmont Benefit Services, Inc., a Pennsylvania corporation, Respondents on Review, and Great Southern Life Insurance Company, a Texas corporation; The Corben Education Services, Inc., an Oregon corporation; and Thomas W. Crosswhite, Respondents on Review.

(CC CV04100199.

CA A130143,

SC S055865).

Supreme Court of Oregon, En Banc.

Argued and Submitted January 14, 2009.

Decided May 29, 2009.

On review from the Court of Appeals.^*

Susan D. Marmaduke, Harrang Long Gary Rudnick PC, Portland, argued the cause and filed the brief on behalf of petitioners on review. With her on the brief were William F. Gary, Sharon A. Rudnick, and Jona J. Maukonen.

Lisa E. Lear, Bullivant Houser Bailey PC, Portland, and Scott Kaplan, Stoel Rives LLP, Portland, argued the cause and filed the brief for respondents on review John J. Koresko, Ram Technical Services Voluntary Employees' Beneficiary Association, Regional Employers' Assurance Leagues Voluntary Employees' Beneficiary Association, Pennmont Benefit Services, Inc., and Great Southern Life Insurance Company. With them on the brief were Robert B. Miller, Andrew C. Hanan, Conrad, O'Brien, Gellman & Rohn, Virginia L. Miller, and Anderson Kill & Olick PC.

Eric K. Helmy, The Helmy Law Firm PC, Portland, filed the brief for respondent on review Thomas W. Crosswhite.

No appearance on behalf of respondent on review The Corben Education Services, Inc.

KISTLER, J.

Plaintiffs filed an action in federal district court, alleging claims arising under the Employee Retirement Income Security Act (ERISA), 29 USC § 1132 et seq. The district court dismissed plaintiffs' federal action, and plaintiffs filed an action in state court, raising parallel state law claims. The question that this case presents is whether either claim preclusion or the statute of limitations bars plaintiffs from pursuing their state law claims in state court. The state trial court ruled in defendants' favor on both grounds and dismissed plaintiffs' action. The Court of Appeals affirmed, relying on claim preclusion. Ram Technical Services, Inc. v. Koresko, 215 Or.App. 449, 171 P.3d 374 (2007), adh'd to on recons., 217 Or.App. 463, 177 P.3d 10 (2008). We allowed plaintiffs' petition for review and now reverse the Court of Appeals decision and remand for further proceedings.

Plaintiffs filed a complaint in the United States District Court for the District of Oregon, raising claims under ERISA. Plaintiffs alleged that defendants had fraudulently induced them to enter into an agreement creating an employee benefit plan and sought, under section 1132(a)(3)(B) of ERISA, either rescission of their agreement or imposition of a constructive trust on payments that they had made to defendants.¹ Defendants moved to dismiss plaintiffs' complaint for failure to state a claim for relief under ERISA, and the district court granted their motion. The district court reasoned that section 1132(a)(3) does not provide a basis for obtaining the relief that plaintiffs sought — rescission of an employee benefit plan. Cf. Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 146-48, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985) (holding that the cause of action set out in 28 USC section 1132(a)(2) did not authorize the type of damages that the plaintiffs sought in that case). The district court recognized that an action to rescind an employee benefit plan because of fraud in the inducement arises, if at all, under state law. The district court accordingly ruled that plaintiffs' complaint should be dismissed for failure to state a claim for relief under ERISA.

After the district court issued its opinion, it entered an order stating that it "granted [defendants'] motion to dismiss plaintiffs' claims due to lack of federal jurisdiction." The district court entered judgment, and defendants later moved to clarify the earlier order. In resolving that motion, the district court ruled:

"Defendants seek to clarify a Minute Order issued by this court indicating that plaintiffs' Complaint had been dismissed for lack of federal jurisdiction. Defendants emphasize that the court found in its Opinion and Order dated April 15, 2004, that plaintiffs had failed to state a claim for which relief could be granted under [ERISA]. Plaintiffs oppose the motion, arguing that the court instead found that it lacked subject matter jurisdiction over plaintiffs' claims because they could not assert a cause of action under ERISA.

"Defendants' Motion to Correct Record of Order (doc. 82) is DENIED, with the following clarification. As specified in the court's written Opinion and Order, plaintiffs' Complaint was dismissed for failure to state a cognizable ERISA claim. While the absence of a federal question rendered the court without subject matter [jurisdiction] over the substance of plaintiffs' allegations, the basis for the dismissal of plaintiffs' claims was nonetheless the failure to state a claim for which relief could be granted. The court's opinion, of course, is limited to plaintiffs' claims asserted under ERISA."

Before the district court entered judgment in the ERISA action, plaintiffs filed an action in state court alleging parallel state fraud claims and seeking either rescission of the agreement or the imposition of a constructive trust on the funds that plaintiffs had paid to defendants. Plaintiffs' state claims arise out of the same transaction that gave rise to their ERISA claims, and the factual allegations are virtually identical. Plaintiffs' state claims differ from their federal claims primarily in the legal theory (fraud as opposed to ERISA) that provides a basis for recovery for defendants' allegedly wrongful acts.

Defendants moved for summary judgment in the state action, arguing that claim preclusion and the statute of limitations provided complete defenses to plaintiffs' claims. The trial court granted summary judgment on both grounds and entered judgment in defendants' favor. On appeal, the Court of Appeals affirmed the trial court's judgment, reasoning that claim preclusion barred plaintiffs from asserting, in the state action, any state law claims that they could have raised under the doctrine of supplemental jurisdiction in the federal action. Ram Technical Services, Inc., 215 Or.App. at 462, 171 P.3d 374. The Court of Appeals observed that, in 1990, Congress had broadened the federal courts' supplemental jurisdiction to hear pendent state claims. Id. at 460, 171 P.3d 374. It concluded that those "broadened supplemental jurisdiction rules not only allow plaintiffs to litigate both state and federal issues at once in federal court, but they also compel plaintiffs to assert all of their transactionally related claims in a single federal forum — or risk losing them to claim preclusion." Id. at 461, 171 P.3d 374.

This court had quoted a different rule from the Restatement (Second) of Judgments in Rennie v. Freeway Transport, 294 Or. 319, 326, 656 P.2d 919 (1982), as the Court of Appeals implicitly recognized. See Ram Technical Services, Inc., 215 Or.App. at 462, 171 P.3d 374 (discussing an earlier Court of Appeals decision, Ron Tonkin Gran Turismo v. Wakehouse Motors, 46 Or.App. 199, 611 P.2d 658, rev. den., 289 Or. 373 (1980), that had followed a tentative draft of the Restatement (Second) of Judgments). The Restatement recognizes that, as a general rule, claim preclusion will bar a plaintiff who litigates a federal claim in federal court from relitigating state claims that the plaintiff could have but did not litigate in the federal action. See Rennie, 294 Or. at 326, 656 P.2d 919 (quoting Restatement (Second) of Judgments § 25 comment e (1982)). However, the Restatement also recognizes an exception to that general rule: If the federal court either clearly lacked jurisdiction over any pendent state law claims or, having jurisdiction, clearly would have declined to exercise its discretion to hear those state law claims, then claim preclusion does not bar litigating those claims. Id.

The Court of Appeals concluded that the 1990 federal statute had superseded the exception set out in the Restatement; however, it also addressed the exception. It reasoned that, even if the exception were still good law, "it is by no means `clear' here that the federal court would have dismissed a common-law fraud claim if it had been asserted in the federal action." Ram Technical Services, 215 Or.App. at 462, 171 P.3d 374. The court explained that the "law governing federal supplemental jurisdiction has undergone significant changes" and "the expansive exercise of supplemental jurisdiction dictates that all claims * * * be joined and, at least potentially, be subject to adjudication in one forum." Id. The court accordingly held that claim preclusion barred plaintiffs from asserting their fraud claims in state court. Having held that plaintiffs' claims were precluded, the Court of Appeals did not reach the question whether those claims were also time-barred, nor did it reach various cross-assignments of error that some defendants had raised. Id. at 452 n. 2, 171 P.3d 374.

We begin with the question of claim preclusion. The Court of Appeals' resolution of that question turns, as do defendants' arguments, on the proposition that Congress expanded the scope of the federal courts' supplemental jurisdiction in 1990 in a way that undercuts the validity of the exception set out in the Restatement. We begin by discussing the scope of the federal courts' supplemental jurisdiction, both before and after the 1990 legislation. We then discuss this court's decision in Rennie, which considered whether a plaintiff's failure to raise a state claim in federal court...