Westhoven v. Lincoln Foodservice Products, Inc., 35A02-9206-CV-260

• Decision Date: 06 July 1993
• Docket Number: No. 35A02-9206-CV-260,35A02-9206-CV-260
• Citation: 616 N.E.2d 778
• Parties: , 2 A.D. Cases 1086, 2 A.D.D. 1323, 4 NDLR P 65, Pens. Plan Guide P 23881Z Gerald T. WESTHOVEN, Personal Representative of the Estate of Kenneth Westhoven, deceased, and State of Indiana Civil Rights Commission, Appellants-Defendants, v. LINCOLN FOODSERVICE PRODUCTS, INC., Appellee-Plaintiff.
• Court: Indiana Appellate Court

Page 778

616 N.E.2d 778

62 USLW 2058, 2 A.D. Cases 1086, 2

A.D.D. 1323, 4 NDLR P 65,

Pens. Plan Guide P 23881Z

Gerald T. WESTHOVEN, Personal Representative of the Estate of Kenneth Westhoven, deceased, and State of Indiana Civil Rights Commission Appellants-Defendants, v. LINCOLN FOODSERVICE PRODUCTS, INC., Appellee-Plaintiff.

No. 35A02-9206-CV-260.

Court of Appeals of Indiana Second District.

July 6, 1993.

Richard J. Swanson, Segal and Macey Indianapolis, Evan Wolfson, Lambda Legal Defense and Educ. Fund, Inc., New York City, Kevin Likes, Auburn, for Gerald T. Westhoven.

Pamela Carter, Atty. Gen., Janice E. Kreuscher, Chief Counsel, Office of Atty. Gen., Indianapolis, for State of Ind., Civil Rights Com'n.

Thomas M. Kimbrough, David R. Steiner, Barrett & McNagny, Fort Wayne, for Lincoln Foodservice Products, Inc.

SULLIVAN, Judge.

Gerald T. Westhoven, in his capacity as personal representative of the Estate of Kenneth Westhoven, and the Indiana Civil Rights Commission (Commission), collectively referred to as Westhoven, appeal the trial court's grant of summary judgment in favor of Lincoln Foodservice Products, Inc. (Lincoln). The dispositive issue upon appeal is whether the Employee Retirement Income Security Act of 1974 (ERISA) ¹ pre-empts Indiana Civil Rights Law (ICRL) ² thereby depriving the Indiana Civil Rights Commission of jurisdiction to regulate Lincoln's self-funded group health insurance plan.

We affirm.

Lincoln manufactures steel food service equipment and commercial aluminum utensils in Fort Wayne, Indiana. The facility employs more than three hundred workers. In 1982, Lincoln hired Kenneth Westhoven, an industrial engineer, to perform time-study management and work-rating studies. Kenneth remained in this salaried position until he became totally disabled in July, 1989.

In 1986, Kenneth tested positive for the HIV virus, the precursor to Acquired Immune Deficiency Syndrome (AIDS). In December, 1988, Kenneth learned he had contracted AIDS and subsequently informed Lincoln of this fact. As a result of his AIDS, Westhoven was a handicapped employee within the meaning of I.C. 22-9-1-3(i) and (q). Stipulation of Fact, p 7. ³ Kenneth submitted medical benefits claims pursuant to Lincoln's self-funded group medical insurance plan (Plan) which had been revised effective January 1, 1988. ⁴

According to the terms of the Plan ⁵, a maximum lifetime benefit of $1,000,000 provided "major medical expense benefits" for covered individuals. However, individuals with AIDS and AIDS Related Complex (ARC) were limited to annual benefits of $25,000 and a maximum lifetime benefit of $50,000. Due to the reduced coverage for AIDS-related medical expenses, Lincoln denied Kenneth $19,750 in annual benefits. As of August, 1990, Kenneth had exhausted approximately sixty percent of his maximum lifetime benefit. Kenneth filed a complaint with the Commission charging that the significant disparity of medical benefits constituted unlawful discrimination on the basis of handicap. Lincoln denied the allegations of discrimination.

After a hearing upon the complaint, the hearing officer entered Proposed Findings of Fact, Conclusions of Law, and Order. The Commission adopted and incorporated the hearing officer's proposals and issued an order adjudging Lincoln to be in violation of Indiana's Civil Rights Law.

This case presents several interesting questions concerning the interplay of federal and state laws relating to employee benefit plans. Initially, we must determine whether the ICRL is exempt from pre-emption by the Employee Retirement Income Security Act of 1974 (ERISA). ⁶ We conclude it is not.

In determining whether express or implied pre-emption attains, we are mindful that our analysis must give effect to congressional intent and that our conclusion must comport with the legislative purposes of ERISA. Shaw v. Delta Airlines, Inc. (1983) 463 U.S. 85, 95, 103 S.Ct. 2890, 2899, 77 L.Ed.2d 490. Since its inception in 1974, ERISA has provided a comprehensive statutory scheme promoting "the interests of employees and their beneficiaries in employee benefit plans." ⁷ Id. at 90, 103 S.Ct. at 2896. In an effort to eliminate the threat of inconsistent and conflicting state laws in this field, ERISA imposed federal regulation upon employee welfare plans by establishing uniform reporting, disclosure, and fiduciary responsibility standards. Id. at 91, 103 S.Ct. at 2896. However, ERISA neither mandates that employers provide particular benefits nor specifically proscribes discrimination in the provision of employee benefits. ⁸

I. ERISA Pre-emption

ERISA's regulatory reach is underscored by a broad pre-emption clause. Section 514(a) of ERISA pre-empts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan". 29 U.S.C. Sec. 1144(a). "A law 'relates to' an employee benefit plan ... if it has a connection with or reference to such a plan." Shaw, supra at 96-97, 103 S.Ct. at 2900 (state law requiring employer to provide pregnancy benefits relates to employee benefit plan). Cf. Edwards v. Bethlehem Steel Corp. (1990) 4th Dist. Ind.App., 554 N.E.2d 833, trans. denied (application of state mechanics lien statute to enforce conditions of fringe benefits relates to employee benefit plan).

In the instant case, the ICRL prohibits Lincoln from structuring its Plan in a manner which discriminates against employees on the basis of handicap. I.C. 22-9-1-2. Lincoln and Westhoven concede that the ICRL is connected with or is construed in reference to the Plan. Nevertheless, the fact that the ICRL "relates to" an employee benefit plan does not automatically trigger pre-emption because the scope of pre-emption is not absolute. ERISA permits certain independent, albeit potentially inconsistent or contradictory, state action in specified areas of local interest and concern.

For example, the "savings" clause explicitly saves state insurance, banking, and securities laws from pre-emption. 29 U.S.C. Sec. 1144(b)(2)(A). Under the "deemer" clause, self-funded plans are not considered "an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies." Id. at Sec. 1144(b)(2)(B). ⁹ This does not end the inquiry, however, because all welfare benefit plans, whether self-funded or otherwise, remain subject to all federal laws whose reach is coterminous with ERISA.

Further, section 514(d) provides that "[n]othing in this subchapter shall be construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States ... or any rule or regulation issued under any such law." Id. at Sec. 1144(d). In certain circumstances, ERISA coexists with federal laws promulgated in areas that may, in fact, relate to and impact upon employee benefit plans. In addition, enactment of state laws specifically authorized by federal law are not deemed pre-empted. Cf. Shaw, supra. Shaw discusses the ERISA pre-emption doctrine within the context of federal civil rights laws. In Shaw, a provision of New York's Human Rights Law requiring employers to pay sick leave benefits to employees disabled because of pregnancy was pre-empted by ERISA because the Supreme Court had previously determined that Title VII did not substantively mandate pregnancy benefits. The Court held that the state law was pre-empted with respect to ERISA "only insofar as [the state law] prohibits practices that are lawful under federal law." Shaw, supra, 463 U.S. at 108, 103 S.Ct. at 2906. ¹⁰ Conversely, the Court held that beyond the provisions of the state law that prohibited lawful federal practices, the New York Human Rights Law would not be pre-empted. Id. We express no opinion, however, beyond the state laws specifically discussed in this opinion, as to what other provisions of a state law may or may not survive pre-emption.

The issue, here, is whether the allegedly discriminatory practices prohibited by the ICRL are lawful under federal law. Restated, the critical inquiry is whether federal law proscribes discrimination on the basis of handicap in the provision of employee welfare plans. If no proscription exists, ERISA pre-empts consideration of Westhoven's state law claim.

Westhoven and Lincoln acknowledge that ERISA pre-empts the ICRL to the extent that the ICRL relates to Lincoln's employee benefit plan. Westhoven contends, however, that the Rehabilitation Act of 1973 ¹¹ (Rehabilitation Act) and the Americans with Disabilities Act of 1990 ¹² (ADA) displace pre-emption pursuant to Section 514(d) of ERISA. According to Westhoven, ERISA pre-emption of the ICRL would, in derogation of Shaw, impair the enforcement of federal antidiscrimination laws which protect the handicapped. Lincoln counters that the Rehabilitation Act did not at times here relevant apply to Lincoln and that the ADA has no bearing upon the resolution of alleged discriminatory practices which took place prior to its enactment. In order to succeed, Westhoven must demonstrate that federal law prohibits an employer from reducing and, ultimately, capping medical benefits solely upon the basis of handicap and that pre-emption of the ICRL would impair such federal law.

II. The Rehabilitation Act of 1973

The Rehabilitation Act, which is enforced by the Office of Federal Contract Compliance Programs, prohibits federal contractors (with government contracts exceeding $2,500 annually) or individuals receiving federal funding from discriminating against handicapped individuals. 29 U.S.C. Secs. 793, 794 (1988). Federal rules impose an affirmative duty to "treat qualified handicapped individuals without discrimination" in all employment practices, including "rates of pay or other forms of compensation," such as employee welfare benefits. 41 C.F.R. Sec....