Sasso v. Vachris

• Decision Date: 22 October 1985
• Citation: 494 N.Y.S.2d 856,66 N.Y.2d 28,484 N.E.2d 1359
• Parties: , 484 N.E.2d 1359, 54 USLW 2250, 6 Employee Benefits Cas. 2393 Robert SASSO et al., as Trustees of Local 282 Welfare and Pension Trust Funds, Appellants, v. Charles F. VACHRIS et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 856

494 N.Y.S.2d 856

66 N.Y.2d 28, 484 N.E.2d 1359, 54 USLW 2250,

6 Employee Benefits Cas. 2393

Robert SASSO et al., as Trustees of Local 282 Welfare and Pension Trust Funds, Appellants, v. Charles F. VACHRIS et al., Respondents.

Court of Appeals of New York.

Oct. 22, 1985.

Steven R. Miller, New York City, for appellants.

John J. Howard and George E. Reed, Jr., New York City, for Charles F. Vachris, respondent.

Robert Abrams, Atty. Gen. (Andrew Schulz, Robert Hermann, O. Peter Sherwood, Carlin Meyer and Jane Lauer Barker, New York City, of counsel), in his statutory capacity under section 71 of the Executive Law, amicus curiae.

OPINION OF THE COURT

SIMONS, Judge.

The question presented is whether Business Corporation Law § 630, which provides an enforcement mechanism for employees to recover unpaid contributions to employee pension funds and welfare benefits directly from the 10 largest shareholders of a closely held corporation, is preempted by section 514(a) of the Employee Retirement Income Security Act (ERISA) of 1974 (29 U.S.C. § 1144[a] ) because it impermissibly regulates the terms and conditions of employee benefit plans. We conclude that it is not.

Plaintiffs are trustees of a welfare and pension trust fund established by Local Union 282. They commenced this action against defendants, shareholders of the Vacar Construction Company, to recover payments which the corporation failed to contribute to the trust fund created to provide welfare and retirement benefits for plaintiffs' members and other covered employees. The unpaid contributions were required by the collective bargaining and trust agreements entered into between Local 282 and Vacar for services performed by Local 282 employees between May 1978 and February 9, 1979. This action was commenced after plaintiffs' attempt to collect the unpaid contributions from Vacar was thwarted when the corporation filed a petition for arrangement under chapter XI of the Bankruptcy Act (11 U.S.C. § 1101 et seq.).

Plaintiffs' complaint alleged two causes of action, the first against the present defendants seeking to recover unpaid contributions under the provisions of Business Corporation Law § 630, and the second against Vacar's officers seeking to recover under Labor Law § 198-c.

Following service of an answer, plaintiffs moved for summary judgment in their favor, dismissal of the affirmative defenses asserted in defendants' answers, and a default judgment against defendant Anthony Vachris who had not appeared. Defendant Charles Vachris submitted a cross motion seeking summary judgment dismissing the complaint. Defendant Helen Vachris joined in his motion opposing plaintiffs' application, claiming that plaintiffs' claim was preempted by ERISA, that plaintiffs had failed to give timely written notice pursuant to Business Corporation Law § 630 and she also asserted that she had not been served with notice. Special Term found the second cause of action predicated on the Labor Law not preempted by ERISA and granted plaintiff summary judgment on it. It dismissed that cause of action against Helen Vachris, however, because she was not an officer of the corporation. It dismissed the first cause of action against the shareholder defendants founded on the Business Corporation Law finding that it was preempted by ERISA (116 Misc.2d 797, 800-802, 456 N.Y.S.2d 629). The Appellate Division modified by dismissing plaintiff's second cause of action as well, holding that no private civil cause of acti is to be implied from Labor Law § 198-c (106 A.D.2d 132, 141, 482 N.Y.S.2d 875, citing Stoganovic v. Dinolfo, 61 N.Y.2d 812, 473 N.Y.S.2d 972, 462 N.E.2d 149, affd. for reasons stated at 92 A.D.2d 729, 461 N.Y.S.2d 121). Plaintiffs do not challenge the Appellate Division's interpretation of the Labor Law on this appeal.

Business Corporation Law § 630 imposes personal liability upon the 10 largest shareholders of closely held New York corporations for the payment of wages and salaries due and owing to its employees. The statute expressly defines wages and salaries to include employer contributions for welfare benefits and to pension funds (see, Business Corporation Law § 630[a], [b] ). ¹ It was designed to remedy precisely the default which is alleged in this litigation and to provide a safeguard for employees who would otherwise be left without recourse in the event of the corporation's insolvency (see, Lindsey v. Winkler, 52 Misc.2d 1037, 1038, 277 N.Y.S.2d 768; Kane v. Benson, 86 F.R.D. 460, 462; 3 White, New York Corporations p 630.01, at 6-736.1). That purpose is achieved by creating a civil cause of action in favor of employees providing them with an additional remedy or enforcement mechanism, not otherwise available, by which they may recover delinquent contributions determined to be "due and owing" by the corporate employer.

ERISA was enacted in 1974 to promote the interests of participants in employee welfare and pension plans by subjecting the plans to Federal regulation (Shaw v. Delta Air Lines, 463 U.S. 85, 90, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490; 29 U.S.C. § 1001). It imposes substantive requirements relating to participation, funding and vesting of pension plans and it also establishes procedural standards for reporting, disclosure and fiduciary responsibilities for both welfare benefits and pension plans (Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, ----, 105 S.Ct. 2380, 2385, 85 L.Ed.2d 728, 735; see, Shaw v. Delta Air Lines, supra, 463 U.S. at p. 91, 103 S.Ct. at 2896; 29 U.S.C. §§ 1021-1114). Although the statute specifies that it provides only minimum standards (see, 29 U.S.C. § 1001[a] ), it contains a preemption clause that is so broad on its face that it has been described as "virtually unique" (Franchise Tax Bd. v. Laborers Vacation Trust, 463 U.S. 1, 24, n. 26, 103 S.Ct. 2841, 2854, n. 26, 77 L.Ed.2d 420). Section 514(a) of ERISA (29 U.S.C. § 1144[a] ) provides, with exceptions not relevant here, that it "supersede[s] any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by ERISA. Because it is undisputed that the employee benefit plan involved in this case is covered by ERISA (see, 29 U.S.C. § 1003[a] ), the issue presented is whether Business Corporation Law § 630 impermissibly "relates to" the plan--within the meaning of section 514(a).

The United States Supreme Court has held that the phrase "relates to" found in section 514(a) of ERISA must be interpreted broadly as its plain language indicates, and that "[a] law 'relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan" (Shaw v. Delta Air Lines, 463 U.S. 85, 96-97, 103 S.Ct. 2890, 2899-2900, 77 L.Ed.2d 490, supra ). ² Both the Supreme Court and several Circuit Courts of Appeals have recognized, however, that "there are necessary limits to the reach of the phrase 'relates to' " (Savings & Profit Sharing Fund v. Gago, 717 F.2d 1038, 1040 [7th Cir.] ) and that ERISA's preemption clause is "neither all-encompassing * * * nor unlimited" (Rebaldo v. Cuomo, 749 F.2d 133, 138 [2d Cir.] ). Thus, only State laws which purport "to regulate, directly or indirectly, the terms and conditions of employee benefit plans" (29 U.S.C. § 1144[c][2] ) "relate to" employee benefit plans and are thus preempted (see, Rebaldo v. Cuomo, supra, at p. 137; Lane v. Goren, 743 F.2d 1337, 1339 [9th Cir.]; Stone & Webster Eng. Corp. v. Ilsley, 690 F.2d 323, 329 [2nd Cir.], affd sub nom. Arcudi v. Stone & Webster Eng. Corp., 463 U.S. 1220, 103 S.Ct. 3564, 77 L.Ed.2d 1405). State laws that affect employee benefit plans in a "tenuous, remote, or peripheral" manner are not preempted (Shaw v. Delta Air Lines, 463 U.S. 85, 100, n. 21, 103 S.Ct. 2890, 2901, n. 21, 77 L.Ed.2d 490, supra; see, American Tel. & Tel. Co. v. Merry, 592 F.2d 118, 121 [2d Cir.] ).

Plaintiffs assert that when these principles are applied, it is manifest that Business Corporation Law § 630 is not preempted because it is remedial only and does not regulate the terms and conditions of the welfare and pension plan. Defendants contend, on the other hand, that the Supreme Court's expansive interpretation of ERISA's preemption clause in Shaw means that ERISA occupies the entire field of employee benefit plans and that Business Corporation Law § 630 falls within its preemptive sweep because it explicitly provides for recovery of employer contributions for welfare benefits or to pension funds. Alternatively, they mainta that section 630 does regulate the terms and conditions of the employee benefit plan and, therefore, is preempted by expanding liability beyond what ERISA requires.

Analysis begins with the presumption that the State law has not been preempted by Federal statute in the absence of persuasive evidence to the contrary (see, Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, ----, 105 S.Ct. 2380, 2390, 85 L.Ed.2d 728, 741, supra; Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 522, 101 S.Ct. 1895, 1905, 68 L.Ed.2d 402) and with the knowledge that our task in deciding this preemption question is to ascertain and give effect to the congressional intent embodied in the Federal statute at issue (Metropolitan Life Ins. Co. v. Massachusetts, supra, 471 U.S. at ----, 105 S.Ct. at 2388, 85 L.Ed.2d at p. 739). So viewed, we have no difficulty in concluding that Business Corporation Law § 630 is not preempted by ERISA.

As noted, section 630 is remedial in nature; it provides an additional enforcement mechanism by which plaintiffs can recover delinquent contributions already due and owing to them pursuant to the corporation's obligations under the collective bargaining and trust agreements. It does not "regulate, directly or indirectly, the terms and conditions" of plaintiffs' welfare and pension plan (29 U.S.C. § 1144[c][2] ) and, therefore, does not "relate to" the employee benefit plan within...