Rodrigues v. United Pub. Workers

• Decision Date: 27 May 2015
• Docket Number: No. SCWC–30286.,SCWC–30286.
• Parties: Gary W. RODRIGUES, Petitioner/Plaintiff–Appellant, v. UNITED PUBLIC WORKERS, AFSCME LOCAL 646, AFL–CIO, Respondent/Defendant–Appellee.
• Court: Hawaii Supreme Court

135 Hawai'i 316

349 P.3d 1171

Gary W. RODRIGUES, Petitioner/Plaintiff–Appellant,

v.UNITED PUBLIC WORKERS, AFSCME LOCAL 646, AFL–CIO, Respondent/Defendant–Appellee.

No. SCWC–30286.

Supreme Court of Hawai‘i.

May 27, 2015.

Eric A. Seitz and Della A. Belatti, Honolulu, for petitioner.

James E.T. Koshiba and Charles A. Price, Honolulu, for respondent.

RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, and WILSON, JJ.

Opinion of the Court by WILSON, J.

I. Introduction

Petitioner Gary Rodrigues (Rodrigues) is the former State Director of United Public Workers, AFSCME Local 646, AFL–CIO (UPW) and a former administrator of UPW's Mutual Aid Fund trust (MAF), an employee benefit plan established to provide hospital and related benefits to UPW members and their families.

In 1998, Rodrigues, as the MAF's plan administrator, made six loans totaling $1.1 million to Best Rescue Systems, Inc. (Best Rescue) a startup company located in Florida. Best Rescue never repaid the loans and in October 2003, the MAF filed a complaint in the United States District Court for the District of Hawai‘i (federal district court) alleging, inter alia, that Rodrigues was negligent in making the loans and had thus breached his fiduciary duties as plan administrator to the MAF.

The federal district court¹ found that the MAF is an Employee Retirement Income Security Act (ERISA) plan under 29 U.S.C. § 1002(1) and that Rodrigues breached his fiduciary duties to the MAF. DeCosta v. Rodrigues, Civ. No. 03–00598 DAE–LEK, 2008 WL 1815716, at *6, *12 (D.Haw. Mar. 20, 2008), aff'd sub nom. De Costa v. Rodrigues, 334 Fed.Appx. 807 (9th Cir.2009). The federal district court held Rodrigues liable for making imprudent investments under ERISA and entered judgment against him for five of the six failed loans in the amount of $850,000. Id. at *14.

In 2008, Rodrigues filed a complaint in the Circuit Court of the First Circuit (circuit court) seeking that UPW indemnify him for the $850,000 plus attorneys' fees and costs incurred in defending the federal lawsuit on the grounds that his liability to the MAF arose from actions he took solely in his capacity as agent for UPW and/or that UPW ratified his actions. UPW responded that Rodrigues was not entitled to indemnification because he was negligent in making the loans, and his indemnification claims were preempted by ERISA. The circuit court agreed with UPW and granted summary judgment in favor of UPW.

Rodrigues appealed to the Intermediate Court of Appeals (ICA) arguing that his state indemnification claims were not preempted under ERISA's "implied conflict" doctrine because they did not "duplicate, supplement, or supplant" remedies provided by ERISA's civil enforcement scheme. The ICA held that ERISA did not preempt Rodrigues' indemnification claims but affirmed the circuit court, stating that "[b]ecause Rodrigues is responsible for his own conduct, he is not entitled to be indemnified for his negligent acts as a matter of law." Rodrigues v. United Public Workers, No. 30286, 2014 WL 983024, at *12 (App. Mar. 13, 2014).

Rodrigues' state indemnity claim derives from the federal district court's conclusion that Rodrigues breached his fiduciary duties to the MAF Plan, an employee benefit plan under ERISA. Thus, we must enter the "ERISA preemption thicket" to determine whether Rodrigues' state law claim survives preemption. Gonzales v. Prudential Ins. Co. of Am., 901 F.2d 446, 451–52 (5th Cir.1990) ("Obviously, any court forced to enter the ERISA preemption thicket sets out on a treacherous path."), superseded by statute on other grounds as recognized in Guidry v. Nw. Mut. Life Ins. Co., 88 Fed.Appx. 12, 13–14 (5th Cir.2004).

Rodrigues requested certiorari on the ground that the ICA erred in concluding that his negligence defeats his indemnification claim as a matter of law. We do not reach this issue because we hold that ERISA preemption, not his negligence, defeats Rodrigues' state indemnity claims against UPW as a matter of law.

II. Background

A. Facts

Rodrigues was the State Director of UPW from 1981 until 2002. UPW is a labor union representing government employees as well as those who work in the private sector. In July of 1984, UPW established the MAF. More than 10,000 persons participate in the MAF. The MAF is funded entirely by contributions from UPW members, UPW employees, and its dependents; employers do not contribute to the MAF. A majority of employee participants are employed by the government. Although the MAF is a 501(c)(9) trust and is a separate legal entity from UPW, the MAF's Board of Trustees (Board) includes the President, Secretary–Treasurer, and the Vice Presidents of five UPW divisions: Private Sector, O‘ahu, Maui, Kaua‘i, and the Big Island. As State Director, Rodrigues was not a member of the Board; however, under the terms of the "Administrative Services Agreement" entered between UPW and the MAF Board, UPW agreed to "[r]eceive, collect, hold, invest and disburse all money payable to or by the [MAF]" through its State Director acting on behalf of UPW.

Beginning in 1998, Rodrigues acted as the MAF plan administrator to make six loans totaling $1.1 million to Best Rescue, a startup company located in Florida. Best Rescue never returned the money. On October 31, 2003, the MAF filed a complaint in federal district court, seeking recovery from Rodrigues for all of the MAF's losses resulting from its investments in Best Rescue.

B. Federal District Court Proceedings

The MAF alleged the following counts in its federal district court complaint: (1) breach of fiduciary duty in violation of 29 U.S.C. § 1104(a)(1)(A) ;² (2) breach of fiduciary duty by co-fiduciary pursuant to 29 U.S.C. § 1105 ;³ and (3) engaging in prohibited transactions in violation of 29 U.S.C. § 1106(a)(1)(D).⁴

After a three-day bench trial, the federal district court entered its "Findings of Fact and Conclusions of Law." The federal district court first concluded that the MAF is an employee benefit plan governed by ERISA pursuant to 29 U.S.C. § 1002(1),⁵ and that it had jurisdiction pursuant to 28 U.S.C. § 1331, which grants the district courts of the United States original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States. De Costa, 2008 WL 1815716, at *6–7.

Second, focusing on Rodrigues' activities rather than his title as UPW's State Director, the court found that the evidence was "sufficient to establish by far more than a preponderance of the evidence that [Rodrigues] exercised discretionary authority and control over the management of the [MAF's] assets" in making the loans to Best Rescue. Id. at *9. The court additionally concluded that pursuant to 29 U.S.C. § 1104, plaintiffs had demonstrated by a preponderance of the evidence that Rodrigues "clearly breached his fiduciary duties" with respect to five of the six loans made to Best Rescue. Id. at *11. Specifically, the federal district court concluded that a prudent fiduciary would have done more before authorizing and recommending further investments with Best Rescue after Rodrigues' first loan to the company. Id. at *12. The court also concluded that the actions of the MAF Board in relation to the failed investments did not make Rodrigues any less liable for his own actions. Id. The court held that Rodrigues was liable under ERISA for making imprudent investments and that he was liable for five of the six failed loans, which totaled $850,000. Id. at *14. The Ninth Circuit Court of Appeals subsequently affirmed the federal district court's judgment. De Costa, 334 Fed.Appx. at 810.

C. Hawai‘i State Court Proceedings

1. Circuit Court Proceedings

On December 9, 2008, Rodrigues filed a "Complaint for Indemnity" in the circuit court, alleging that his liability to the MAF "arose solely from acts and/or omissions" committed by Rodrigues "in his capacity as agent of Defendant UPW and/or were authorized and/or ratified by the trustees of the [MAF] and/or Defendant UPW." Rodrigues sought indemnification from UPW in the amount of $850,000 plus attorneys' fees and costs incurred in defending the ERISA breach of fiduciary duties action. UPW filed an answer asserting multiple defenses, including ERISA preemption.

Rodrigues moved the circuit court for partial summary judgment in his favor as to the duty/liability of UPW to indemnify Rodrigues for the loss he suffered in the federal district court proceedings. Rodrigues argued that the underlying actions for which he was held liable under ERISA were within the scope of his performance of duties assigned to him by UPW. Rodrigues thus asserted that UPW was vicariously liable to the MAF for Rodrigues' actions, and also directly liable for its negligence in assigning him as the MAF's administrator. Accordingly, Rodrigues contended that UPW had a duty to indemnify him for the federal district court judgment.

In opposition, UPW argued that Rodrigues had no right of indemnity under ERISA and that ERISA preempted any alleged state law indemnity claim. The circuit court agreed with UPW; it concluded that Rodrigues' indemnity claim was preempted by ERISA and entered summary judgment in favor of UPW.⁶

2. ICA Proceedings

On appeal to the ICA, Rodrigues argued that his action was not preempted under the doctrine of implied conflict preemption because his indemnity claim did not " ‘duplicate[ ], supplement[ ], or supplant[ ]’ remedies provided in ERISA's civil enforcement scheme." He also asserted that his action was not expressly preempted by ERISA's preemption clause. Rodrigues contended that his indemnification claim arose solely from his employment relationship with UPW, which was not an ERISA party in the underlying federal court action. Rodrigues thus argued that his indemnity claim was not preempted by ERISA's express preemption clause because,

(1) his claims [were] entirely independent of any ERISA duties or obligations; (2) adjudication of these claims [would] not involve the plan's administration and the

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