Selflube, Inc. v. Jjmt, Inc.

• Decision Date: 25 March 2008
• Docket Number: Docket No. 261743.
• Parties: SELFLUBE, INC., Plaintiff, v. JJMT, INC., and James A. DeHaan, Individually, Defendants/Cross-Defendants/Fourth-Party Defendants-Appellants, and Action Industrial Supply Company, Defendant/Cross-Plaintiff/Third-Party Plaintiff, v. H.S. Die & Engineering, Inc., Third-Party Defendant/Fourth-Party Plaintiff-Appellee, and Thomas Wood, Defendant.
• Court: Court of Appeal of Michigan — District of US

750 N.W.2d 245

278 Mich. App. 298

SELFLUBE, INC., Plaintiff, v. JJMT, INC., and James A. DeHaan, Individually, Defendants/Cross-Defendants/Fourth-Party Defendants-Appellants, and Action Industrial Supply Company, Defendant/Cross-Plaintiff/Third-Party Plaintiff, v. H.S. Die & Engineering, Inc., Third-Party Defendant/Fourth-Party Plaintiff-Appellee, and Thomas Wood, Defendant.

Docket No. 261743.

Court of Appeals of Michigan.

Decided March 25, 2008, at 9:05 a.m.

Miller Johnson (by William H. Fallon and Michael E. Stroster), Grand Rapids, for H.S. Die & Engineering, Inc.

Mika Meyers Beckett & Jones, PLC (by Neil P. Jansen), Grand Rapids, for James A. DeHaan.

Before: O'CONNELL, P.J., and WHITE and MARKEY, JJ.

PER CURIAM.

Fourth-party-defendants James A. DeHaan and JJMT, Inc., appeal by leave granted the permanent injunction entered by the circuit court. We vacate the injunction, concluding that it violates the Employee Retirement Income Security Act (ERISA), 29 USC 1001 et seq., and remand to the circuit court for proceedings consistent with this opinion.

This case arose out of an embezzlement scheme by fourth-party defendant DeHaan. He was employed as the purchasing manager for fourth-party plaintiff H.S. Die & Engineering, Inc. (HSD), and ordered supplies and materials for HSD from various vendors, including plaintiff Selflube, Inc. DeHaan placed orders in the name of JJMT, Inc., a corporation of which he was the owner and president, and had the products shipped to HSD. It was alleged that DeHaan then had Action Industrial Supply Company provide packing slips [and invoices], but no actual goods, to HSD at a greatly inflated price. HSD paid the Action Industrial invoices at the marked-up price, Action Industrial kept a percentage of the payment and forwarded the remainder to JJMT. DeHaan then paid Selflube and the other vendors at the lower price through JJMT, thereby retaining substantial profits. One of DeHaan's accomplices pleaded guilty in federal court and identified DeHaan as the organizer of the scheme.

Selflube filed suit against DeHaan and JJMT. Other cross-claims and counter-claims involving the other named parties followed. DeHaan applied for a distribution from his 401(k) retirement plan. HSD, being the plan administrator, became aware of DeHaan's application and thereafter filed the fourth-party complaint against DeHaan and JJMT that is relevant to this appeal, alleging common-law counts of fraud, civil conspiracy, tortious interference with advantageous business relationships or expectancies, and statutory conversion. A temporary restraining order was entered.

DeHaan ultimately failed to defend against HSD's complaint, and HSD requested a default judgment. A default was entered with regard to the relevant cross-complaint against JJMT and DeHaan. Before the default was entered, however, DeHaan challenged the preliminary injunction and moved to set it aside, arguing that HSD had no legal right to an injunction against his 401(k) account because the funds were regulated by ERISA and were protected by ERISA's antialienation provision, 29 USC 1056(d)(1)¹. DeHaan argued that pension funds are protected even when the plan participant has committed malfeasance, relying on Guidry v. Sheet Metal Workers Nat'l Pension Fund, 493 U.S. 365, 110 S.Ct. 680, 107 L.Ed.2d 782 (1990) (Guidry I).

HSD argued in response to DeHaan's motion that the preliminary injunction did not violate ERISA's antialienation provision, relying on State Treasurer v. Abbott, 468 Mich. 143, 660 N.W.2d 714 (2003). Ultimately, the circuit court entered an order granting HSD a permanent injunction, which provided:

1. This Court's November 24, 2004, Preliminary Injunction is replaced by this Permanent Injunction;

2. James A. DeHaan is prohibited from transferring, disposing of, encumbering, taking a distribution of, or liquidating DeHaan's interest in H.S. Die and Engineering's Employees 401(k) Salary Savings Plan ("the Plan") without 30 days prior written notice to H.S. Die;

3. If DeHaan requests any transfer, disposition, distribution or liquidation of any of his interest in the Plan, including but not limited to a direct rollover to an individual retirement account, he shall require the Plan Administrator to transfer all distributed funds to a financial institution and an account selected by H.S. Die;

4. Following the transfer of any funds from the Plan, DeHaan is prohibited from transferring, disposing of, encumbering, taking a distribution of, or liquidating DeHaan's interest in the account selected by H.S. Die;

5. All those in active concert or participation with DeHaan are prohibited from assisting DeHaan from concealing, transferring, disposing of, encumbering, or liquidating DeHaan's interest in the Plan, except in accordance with this Order;

6. The financial institution that receives the funds distributed from the Plan is required to prohibit the withdrawal, transfer, disposition, liquidation or encumbrance of any of DeHaan's funds, money or assets from the accounts until further Order of this Court; and

7. DeHaan will provide the financial institution that receives these funds with a copy of this Order.

This appeal ensued.

I

DeHaan asserts that the circuit court's injunction impermissibly interferes with his rights as a plan participant under ERISA. He offers several arguments in support of this position.

A

DeHaan argues that the circuit court lacked jurisdiction to issue the permanent injunction and that HSD lacks standing to bring this action. We disagree.

"Whether a court has subject-matter jurisdiction is a question of law subject to review de novo." Cherry Growers, Inc. v. Agricultural Marketing & Bargaining Bd., 240 Mich.App. 153, 160, 610 N.W.2d 613 (2000). DeHaan's jurisdictional argument relies on 29 USC 1132(e)(1), which provides:

Except for actions under subsection (a)(1)(B) of this section[²], the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, fiduciary, or any person referred to in section 1021(f)(1)[³] [29 USC 1021(f)(1)] of this title. State courts of competent jurisdiction and district courts of the United States shall have concurrent jurisdiction of actions under paragraphs (1)(B)⁴ and (7)⁵ of subsection (a) of this section.

DeHaan argues that HSD's claims do not fall under either of the excepted subsections providing for concurrent jurisdiction [1132(a)(1)(B) and (a)(7)] and, therefore, federal district courts have exclusive jurisdiction. The statute's plain language, however, states that it only applies to actions brought "under this subchapter. . . ." 29 USC 1132(e)(1). DeHaan does not argue that HSD's action was brought under ERISA, and it clearly was not. HSD's cause of action is a state-common-law-based claim for fraud, civil conspiracy, tortious interference with advantageous business relationships or expectancies, and statutory conversion. HSD's claim for injunctive relief is also based on state law and was not brought under ERISA. DeHaan's claim that the circuit court lacked jurisdiction is therefore without merit.

B

DeHaan's argument that HSD lacks standing is similarly without merit. DeHaan argues that HSD, as an employer, lacks standing under 29 USC 1132(e)(1). However, the standing provisions pertain only to civil actions brought "under this subchapter. . . ." 29 USC 1132(e)(1). The instant action is not such a civil action.

C

Next, DeHaan argues that ERISA preempts any state-law basis for HSD's claim, and that his rights are protected by ERISA's antialienation provision, § 1056(d)(1). We agree that to the extent that the injunction conflicts with ERISA, it is preempted.

A determination of preemption involves statutory interpretation and is reviewed de novo. Nelson v. Assoc. Financial Services Co. of Indiana, Inc., 253 Mich.App. 580, 587, 659 N.W.2d 635 (2002). Federal preemption originates in the Supremacy Clause, U.S. Const., art. VI, cl. 2, which states that the law of the United States "shall be the supreme Law of the Land." Ryan v. Brunswick Corp., 454 Mich. 20, 27, 557 N.W.2d 541 (1997), overruled in part on other grounds Sprietsma v. Mercury Marine, 537 U.S. 51, 123 S.Ct. 518, 154 L.Ed.2d 466 (2002). Consideration of issues arising under the Supremacy Clause starts with the assumption that a state's historic police powers are not superseded unless that is the clear and manifest purpose of Congress. Allen-Bradley Local No. 1111, United Electrical, Radio & Machine Workers of America v. Wisconsin Employment Relations Bd., 315 U.S. 740, 749, 62 S.Ct. 820, 86 L.Ed. 1154 (1942). Congress's purpose is therefore "`"the ultimate touchstone"'" of a preemption analysis. Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 120 L.Ed.2d 407 (1992) (citations omitted). "The basic thrust of the [ERISA] preemption clause is to avoid a multiplicity of regulation in order to permit the nationally uniform administration of employee benefit plans." Yerkovich v. AAA, 231 Mich.App. 54, 67, 585 N.W.2d 318 (1998), rev'd on other grounds 461 Mich. 732, 610 N.W.2d 542 (2000).

ERISA's "preemption clause" provides, in relevant part:

Except as provided in subsection (b) of this section,⁶ the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title. [29 USC 1144(a).]

State laws that "relate to" qualifying employee benefit plans are superseded by ERISA. 29 USC 1144(a); Yerkovich, 231 Mich.App. at 67, 585 N.W.2d 318. A law "relates to" a plan when it has a connection with or reference to such a plan. Guidry v. Sheet Metal Workers Nat'l Pension Fund, 39 F.3d 1078, 1083 (C.A.10, 1994) (Guidry III). "[A] preëmptive relationship to an ERISA plan is...