Retirement Fund Trust of Plumbing v. Franchise Tax Bd.

• Citation: 909 F.2d 1266
• Decision Date: 16 July 1990
• Docket Number: Nos. 88-6355,88-6415,s. 88-6355
• Parties: 12 Employee Benefits Ca 1993 RETIREMENT FUND TRUST OF THE PLUMBING, etc., et al., Plaintiffs-Appellants, v. FRANCHISE TAX BOARD, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1266

909 F.2d 1266

12 Employee Benefits Ca 1993

RETIREMENT FUND TRUST OF THE PLUMBING, etc., et al Plaintiffs-Appellants, v. FRANCHISE TAX BOARD, et al., Defendants-Appellees.

Nos. 88-6355, 88-6415.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 4, 1989.

Decided July 16, 1990.

James A. Bowles, Hill, Farrer & Burrill, Los Angeles, Cal., for plaintiffs-appellants.

Raymond B. Jue, Deputy Atty. Gen., Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before GOODWIN, Chief Judge, and SCHROEDER and BEEZER, Circuit Judges.

BEEZER, Circuit Judge:

Two ERISA-regulated trust funds and their trustees appeal a grant of summary judgment in favor of officials of the State of California. The district court held that the state's tax levy and withholding procedures are not preempted by federal law. We affirm in part and vacate in part.

I FACTS

The Employee Retirement Income Security Act of 1974 ("ERISA" or "the Act") ¹ established a comprehensive federal statutory scheme designed to protect two types of "employee benefit plans": "pension" plans ² and "welfare" plans. ³ See Hydrostorage, Inc. v. Northern California Boilermakers Local Joint Apprenticeship Comm., 891 F.2d 719, 726 (9th Cir.1989). Pension plans, to qualify under the statute, must "provide that benefits provided under the plan may not be assigned or alienated." ⁴ Welfare plans need not provide this protection.

The trusts that bring this appeal are, the parties agree, "employee benefit plans" regulated by ERISA. The Retirement Fund Trust of the Plumbing, Heating and Piping Industry of Southern California is a "pension" plan; the Vacation and Holiday Benefit Fund of Southern California is a "welfare" plan. The documents of both trusts prohibit alienation. ⁵

ERISA includes a broad preemption provision whereby federal law will "supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" under the Act. ⁶ The statute lists certain specific exceptions to the general rule of preemption, ⁷ but state tax laws are not included within any exception. ⁸

Citing ERISA's preemption provisions and their own trust documents, the trusts brought these declaratory judgment actions against two groups of California state officials to challenge two types of tax collection procedures. The California Franchise Tax Board, through its members (collectively "the Board"), is charged with collecting the state's income tax. ⁹ It may levy against delinquent taxpayers ¹⁰ or require regular withholding procedures. ¹¹ The Employment Development Department ("EDD"), acting through its director, is charged with collecting the state's unemployment insurance tax. ¹² EDD is authorized to require withholding. ¹³

The Board has exercised its authority and filed levies on funds held in the vacation trust. It also requires withholding by the vacation trust in certain circumstances. ¹⁴ The Board does not apply either procedure to the pension trust. ¹⁵

EDD requires withholding by the pension trust. ¹⁶ Beneficiaries may elect to have no tax withheld. ¹⁷ EDD does not require withholding by the vacation trust. ¹⁸

The trusts argue that these California tax collection procedures are state tax laws that "relate to" employee benefit plans, violate the trusts' own prohibitions on alienation, and are preempted by ERISA. The vacation trust has refused to comply with the Board's levy requests; ¹⁹ it has instead set aside levied money in order to safeguard the trust. It has not commenced withholding. The pension trust has complied with EDD's withholding requirement, but challenges the requirement. ²⁰

The state officials, in turn, argue that these suits are barred by the Tax Injunction Act.

The district court granted two summary judgments. First, the court held that the suits were not barred by the Tax Injunction Act and granted summary judgment in favor of the trusts. It then granted summary judgment in favor of the Board and EDD, holding that ERISA did not preempt tax levies against the vacation trust. The court did not reach the question of levies against the retirement trust, since the Board had not levied against that trust. The court also did not discuss the withholding statutes. As filed, however, the final judgment broadly held that none of the levy or withholding statutes was preempted.

The trusts timely appeal. The Board cross appeals, challenging the judgment on jurisdiction. We review the district court's grants of summary judgment de novo. T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 629 (9th Cir.1987). Summary judgment is appropriate where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); T.W. Elec. Serv., 809 F.2d at 630.

We agree with the district court that jurisdiction was proper. We also agree that funds in the vacation trust are amenable to levy. We hold that funds in both trusts are amenable to the withholding procedures applied to them. However, we find that ERISA may preempt tax levies against funds in the retirement trust and therefore vacate the district court's judgment to the extent it holds that levies against pension funds are not preempted.

II JURISDICTION

The Board and EDD argue that the Tax Injunction Act bars this suit because the trusts have an adequate remedy under California state law. They further argue that the district court should have abstained pending the outcome of a similar case brought in California state court. We disagree.

A

The Tax Injunction Act bars federal courts from enjoining the collection of state taxes "where a plain, speedy and efficient remedy may be had in the courts of such State." ²¹ ERISA does not create an exception to this statute, even though federal courts have exclusive jurisdiction over ERISA claims ²² and may enjoin other state actions that violate ERISA. ²³ General Motors v. California Bd. of Equalization, 815 F.2d 1305, 1308 (9th Cir.1987), cert. denied sub nom. General Motors v. Bennett, 485 U.S. 941, 108 S.Ct. 1122, 99 L.Ed.2d 282 (1988); Ashton v. Cory, 780 F.2d 816, 821-22 (9th Cir.1986).

The Board concedes that under California law, the trusts cannot bring a direct action in state court to challenge the Board's income tax collection procedures. ²⁴ See General Motors, 815 F.2d at 1308; Ashton, 780 F.2d at 819; Capitol Industries/EMI v. Bennett, 681 F.2d 1107, 1118-19 (9th Cir.1982), cert. denied, 455 U.S. 943, 102 S.Ct. 1438, 71 L.Ed.2d 655 (1982), 459 U.S. 1203, 103 S.Ct. 1189, 75 L.Ed.2d 435 (1983). The Board suggests that the trusts should instead comply with its levies and wait for a beneficiary to bring an action in state court.

We have held the California scheme to be adequate when state court proceedings involving the same parties and issues were already underway, providing an ERISA trust with an opportunity to present its preemption argument, if only defensively. See Ashton, 780 F.2d at 819-20. Absent an ongoing state action, however, we have rejected the indirect procedures available to a trust as neither plain, speedy nor efficient. See General Motors, 815 F.2d at 1308. ERISA trustees bear a fiduciary relationship to their beneficiaries ²⁵ and are independently entitled to a judicial forum. Id. Because California law denies the trusts a judicial forum to challenge actions of the Board, it does not satisfy the requirements of the Tax Injunction Act. Id. We conclude that the actions against the Board are not barred here.

California's unemployment tax collection procedures present a different problem, however, one the district court did not address. Under California's Unemployment Insurance Code, an "employing unit or other person by whom it was paid" may seek a refund of excess contributions and ultimately bring an action in state court against EDD. ²⁶ The United States Supreme Court has held that this scheme provides an adequate remedy for an employer seeking a refund for its own contributions. See California v. Grace Brethren Church, 457 U.S. 393, 413-14, 102 S.Ct. 2498, 2510, 73 L.Ed.2d 93 (1982) (citing Cal.Unemp.Ins.Code Secs. 1176-1185). California courts have also held that an employer, liable for his own share of unemployment contributions, has an adequate remedy at law in a refund action against EDD. Lorco Properties, Inc. v. California Dept. of Benefit Payments, 57 Cal.App.3d 809, 129 Cal.Rptr. 312 (1976).

Most of the provisions approved of by the Grace Brethren Court apply to the withholding procedures challenged by the trusts here. ²⁷ EDD does not, however, rely on the sections of the code approved of by the Grace Brethren Court. Instead, EDD has consistently argued throughout this litigation that the retirement trust should follow the procedures set forth in Unemployment Insurance Code sections 1131, 1222, 1224 and 1241. Under these provisions, EDD issues an assessment for amounts not paid, the recipient petitions for reassessment through an administrative law judge and appeals board, and the assessment becomes final. The petitioner then pays the amount assessed, files a claim for a refund, ²⁸ and brings an action in state court against EDD.

This procedure differs significantly from that approved by the Grace Brethren Court. As the trust points out, to invoke this procedure, it must first fail to pay the withholding that is due. Failure to pay withholding exposes the trust to substantial penalties and interest. ²⁹

EDD's instruction that the trust should follow a different statutory route, together with certain features of the omitted sections, leave us uncertain whether the "plain, speedy and efficient" remedy available to the employer/taxpayer in Grace Brethren is equally available to these nontaxpayer trusts. ³⁰ We are without guidance on this point from the California Supreme Court. We therefore analyze EDD's argument under the...