Retail Shoe Health Com'n v. Reminick

• Decision Date: 17 May 1984
• Citation: 62 N.Y.2d 173,464 N.E.2d 974,476 N.Y.S.2d 276
• Court: New York Court of Appeals Court of Appeals
• Parties: , 464 N.E.2d 974, 6 Employee Benefits Cas. 1606 RETAIL SHOE HEALTH COMMISSION, Plaintiff, and Jack Maltz et al., as Trustees of Retail Shoe Health Commission, Appellants, v. Charles G. REMINICK et al., Individually and Doing Business as Reminick, Aarons & Company, Defendants. Charles G. REMINICK et al., Individually and Doing Business as Reminick, Aarons & Company, Third-Party Plaintiffs-Respondents, v. Jack MALTZ et al., Third-Party Defendants-Appellants; Tolley International Corporation, Third-Party Defendant-Respondent, et al., Third-Party Defendants.

Page 276

476 N.Y.S.2d 276

62 N.Y.2d 173, 464 N.E.2d 974, 6

Employee Benefits Cas. 1606

RETAIL SHOE HEALTH COMMISSION, Plaintiff, and Jack Maltz et

al., as Trustees of Retail Shoe Health Commission, Appellants, v. Charles G. REMINICK et al., Individually and Doing Business

as Reminick, Aarons & Company, Defendants.

Charles G. REMINICK et al., Individually and Doing Business

as Reminick, Aarons & Company, Third-Party Plaintiffs-Respondents, v. Jack MALTZ et al., Third-Party Defendants-Appellants;

Tolley International Corporation, Third-Party

Defendant-Respondent, et al., Third-Party Defendants.

Court of Appeals of New York.

May 17, 1984.

Arthur D. Felsenfeld and Martin I. Shelton, New York City, for appellants

Andrew R. Simmonds, Robert E. Meshel and William M. Ried, New York City, for Charles G. Reminick and others, third-party plaintiffs-respondents.

Dorit S. Heimer and Peter N. Wang, Brooklyn, for Tolley Intern. Corp., third-party defendant-respondent.

OPINION OF THE COURT

JONES, Judge.

The pre-emptive provisions of ERISA govern the judicial determination of breach of fiduciary duty claims against the trustees of an employee welfare benefit plan within the embrace of that Act and preclude actions in State courts for the enforcement of such claims. Accordingly, where such a plan has brought an action in our State courts against its accountants and consultants for their alleged failure to detect and report substantial misappropriations by the administrator of the plan, our courts are foreclosed from entertaining claims over by the accountants and consultants against the individual trustees of the plan for contribution or indemnity based on allegations that breach of their fiduciary duties by the trustees contributed to the losses sustained by the plan.

In the initial action, Retail Shoe Health Commission, a collectively bargained, multiemployer, jointly administered Welfare Fund (Fund), and the individual trustees of the Fund sought to impose liability on Reminick, Aarons & Company, a partnership, and its individual partners on the theory that as public accountants and auditors of the Fund they had failed and neglected to detect and report the misappropriation by Jerome Simon, the administrator of the Fund, of some $675,000 of Fund assets. Reminick then served a third-party complaint against the trustees individually and Tolley International Corporation (which had been engaged by the Fund to provide actuarial and consulting services), seeking judgment over by way of contribution or indemnity or both. Tolley thereupon served counterclaims against Reminick, the Fund and the trustees individually as well as a cross claim against the trustees individually, all similarly seeking contribution or indemnification or both.

The individual trustees moved to dismiss the third-party complaint of Reminick and the counterclaim and cross claim of Tolley on the ground that the court lacked subject matter jurisdiction of the claims and that Tolley lacked standing to sue. The theory of the motion to dismiss was that the various claims against the individual trustees were governed and controlled by the provisions of the Employee Retirement Income Security Act of 1974 (ERISA, 88 U.S.Stat. 829, U.S.Code, tit. 29, § 1001 et seq.) and that dismissal was mandated to give effect to the resulting Federal pre-emption.

Supreme Court denied the motion to dismiss, holding that ERISA does not pre-empt State law when a vital State interest is involved and is tangential to the employee benefit plan and that the stated causes of action for contribution and indemnification came within such exception. The Appellate Division affirmed, without opinion, and granted the individual trustees leave to appeal to our court on a certified question. We reverse.

Inasmuch as it is undisputed that the Fund is an employee welfare benefit plan within the embrace of ERISA (ERISA, § 3, subd. U.S.Code, tit. 29, § 1002, subd. ), resolution of the issues posed on this appeal turns on the effect the provisions of ERISA have on the claims here sought to be dismissed.

We start with the ineluctable premise that the Federal law pre-empts State regulation of ERISA employee benefit plans. The Act provides expressly that its provisions shall supersede all State laws insofar as they may relate to any employee benefit plan within its embrace. ¹ The individual trustees are fiduciaries within the meaning of subdivision (21) of section 3 of ERISA (U.S.Code, tit. 29, § 1002, subd. ) and the gravamen of the claims of both Reminick and Tolley against them is breach of fiduciary duties (i.e., that the trustees should have known of the embezzlements and defalcations of Simon, that they permitted and condoned his misconduct, that by acts of omission and commission they participated in that misconduct, that they breached their obligation to report such misconduct, and in general that they are liable in consequence of breaches of duty, want of due care, and other fault). As a matter of substantive law, the nature and scope of the duties and liability of the trustees in this regard are determinable under the provisions of ERISA (e.g., ERISA, §§ 404, 405, 409, U.S.Code, tit. 29, §§ 1104, 1105, 1109). It is substantive claims of just this character that fall squarely within the scope and thus the pre-emption of ERISA.

The question then arises as to whether these claims may be asserted in a State court action such as the present. Here again, it is the provisions of ERISA which are determinative. Subdivision (e) of section 502 of ERISA (U.S.Code, tit. 29, § 1132, subd. ) ² provides that the District Courts of the United States shall have exclusive jurisdiction over civil actions arising under ERISA (with an exception not now pertinent). Accordingly, we are obliged to conclude that the present claims asserted by Reminick and Tolley against the trustees may not be entertained in our State courts.

Reminick and Tolley argue that because they do not come within the literal terms of subdivision (a) of section 502 of ERISA, ³ which lists the persons empowered to bring a civil action under the Act, the Congress cannot have intended that ERISA would preclude their claims. This argument is wide of the mark. Inasmuch as ERISA pre-empts all claims based on alleged breach of fiduciary duty on the part of ERISA trustees and vests jurisdiction for their enforcement exclusively in the Federal courts, the circumstance that persons in the outboard position of Reminick and Tolley may have no statutory standing to bring such an action under the Federal regulatory scheme is merely an aspect of that scheme. If there is a deficiency or inequity in the scope of subdivision (a) of section 502, it is attributable to the Act itself and any petition for remedy or correction must be addressed to the Congress.

The same response must be made to the arguments of Reminick and Tolley that they are entitled to assert their claims for contribution and indemnity under State law (e.g., CPLR art 14; Dole v. Dow Chem. Co., 30 N.Y.2d 143, 331 N.Y.S.2d 382, 282 N.E.2d 288) in our State courts. The State laws in this regard, too, have been superseded and the claims pre-empted under ERISA (cf. Michota v. Anheuser-Busch, Inc., Nos. 76-193, 77-2543 ).

Finally, Tolley argues that there should at least be no dismissal of its claims against the individual trustees to the extent that they arise out of transactions which took place prior to January 1, 1975, the effective date of ERISA. It is accurate to say, of course, that ERISA pre-emption does not apply with respect to any act or omission which occurred prior to that date (ERISA, § 514, subd. par. U.S.Code, tit. 29, § 1144, subd. par. ). Tolley did not, however (nor did the Fund and the individual trustees in the initial action) plead claims based on pre-1975 transactions separately or seek discrete relief with respect thereto; Tolley's pleading of all claims is lumped in a single cause of action which must stand or, in this instance, fall as a unit. Nevertheless, our dismissal of Tolley's pleadings now before us is without prejudice to the right of Tolley, if it be so advised, to apply at Supreme Court for leave to replead to state separately claims it would assert based on acts and omissions that occurred prior to January 1, 1975.

For the foregoing reasons the order of the Appellate Division should be reversed, with costs, the motion of the individual trustees granted, and the counterclaim, the cross claims, and the third-party complaint against them dismissed, without prejudice to the right of Tolley to apply for leave to replead as indicated. Kaye, J. (dissenting). This case centers on the misappropriation of approximately $675,000 from the Retail Shoe Health Commission (the Fund), an employee welfare benefit plan, by its former administrator, Jerome Simon. The Fund and its individual trustees brought suit in State court against the Fund's former accountants on three theories: first, that the accountants breached their contract to audit the Fund's books and records, enabling Simon to divert the funds; second, that the accountants were negligent, resulting in the loss; and third, that they "are obligated to indemnify plaintiffs for their loss." Respondents' affirmative defense, ^* cross claim, counterclaim and third-party claim allege that the trustees themselves failed in their own fiduciary responsibilities to the Fund, which caused or contributed to the loss. By these allegations they seek no...