Wolf v. Reliance Standard Life Ins. Co.

• Decision Date: 06 October 1995
• Docket Number: No. 95-1440,95-1440
• Citation: 71 F.3d 444
• Parties: , 19 Employee Benefits Cas. 2438 Alvan H. WOLF, Plaintiff, Appellee, v. RELIANCE STANDARD LIFE INSURANCE COMPANY, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 444

71 F.3d 444

64 USLW 2411, 19 Employee Benefits Cas. 2438

Alvan H. WOLF, Plaintiff, Appellee, v. RELIANCE STANDARD LIFE INSURANCE COMPANY, Defendant, Appellant.

No. 95-1440.

United States Court of Appeals,

First Circuit.

Heard Oct. 6, 1995.

Decided Dec. 11, 1995.

James A. Young with whom Michael J. Burns, Christie, Pabarue, Mortensen & Young, P.C., Philadelphia, PA and Cheri L. Crow, Boston, MA, were on brief for appellant.

William E. Bernstein with whom Barbara S. Liftman and Weinstein, Bernstein & Burwick, P.C., Worcester, MA, were on brief for appellee.

Before TORRUELLA, Chief Judge, STAHL and LYNCH, Circuit Judges.

STAHL, Circuit Judge.

Plaintiff-appellee Alvan Wolf prevailed in his jury-tried contract action against defendant-appellant Reliance Standard Life Insurance Company ("Reliance") for denial of disability benefits. Reliance appeals the trial court's ruling that ERISA preemption is an affirmative defense which Reliance waived by failing to plead it timely. We affirm.

I. BACKGROUND

We begin by reciting the facts in the light most favorable to the verdict. See Aetna Cas. Sur. Co. v. P & B Autobody, 43 F.3d 1546, 1552 (1st Cir.1994).

Wolf founded Brookfield Factory Outlet, Inc. ("Brookfield"), a now-defunct chain of shoe stores. During Brookfield's heyday, Wolf earned approximately $8,000 per month as its President and Chief Executive Officer. In the fall of 1988, he was diagnosed with severe depression, apparently resulting from From the time of Wolf's depression diagnosis in 1988 until his heart attack in 1989, he actually drew only $500 per week of his $8,000 per month salary due to Brookfield's ongoing financial problems. There was conflicting testimony at trial as to whether Wolf actually was entitled to the unpaid remainder of his salary, which Wolf asserted the company owed him as a debt payable.

business and personal difficulties. In the spring of 1989, Wolf experienced heart problems requiring a brief hospitalization. Thereafter, Wolf continued to work until April 24, 1989, when he suffered a massive heart attack.

The insurance policy under which Wolf sought recovery took effect on February 1, 1985. The policy provided a monthly benefit to a disabled employee equal to sixty percent of "covered monthly earnings," defined as "the insured's basic monthly salary received from [the employer] on the day just before the date of total disability." In September 1990, Wolf filed a claim for disability benefits. Reliance denied the claim in May 1991, stating that Wolf had neither proved that he was a full-time employee when he became disabled nor that he was totally disabled, and that Wolf was late giving notice of his claim.

In January 1992, Wolf, a Massachusetts citizen, sued Reliance in Massachusetts state court alleging breach of contract and unfair trade practices. Reliance, an Illinois corporation with its principal place of business in Pennsylvania, removed the suit, based on diversity, to the United States District Court for the District of Massachusetts. 28 U.S.C. Secs. 1441, 1332.

The parties consented to trial before U.S. Magistrate Judge Charles B. Swartwood III. On October 25, 1994, one week before trial, Reliance filed several motions, ¹ each asserting, for the first time, that Wolf's state law claims were preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"). 29 U.S.C. Secs. 1001-1461. The trial court denied the motions, ruling that ERISA preemption was an affirmative defense which Reliance waived by failing to plead it in a timely manner. The trial court then denied Reliance leave to amend its pleadings, finding undue delay by Reliance and significant prejudice to Wolf if, on the eve of trial, Reliance were allowed to change the entire legal basis for its opposition to Wolf's claim by its introduction of an ERISA preemption defense. ²

The breach of contract claim was tried to a jury on November 2-4, 1994, resulting in a special verdict for Wolf. The jury found that Wolf's basic monthly salary was $8,000 per month on the day before he became totally disabled. The trial court entered judgment for Reliance on the unfair trade practices claim, and Wolf does not appeal from that judgment. In December 1994, the trial court issued a memorandum decision calculating Wolf's damages to be $196,606.72 plus interest and future payments. ³ Reliance then filed a renewed motion for judgment as a matter of law and, alternatively, a motion for a new trial, and both were denied. This appeal followed.

II. DISCUSSION

The principal issue before us is whether ERISA preemption is jurisdictional, and thus may be raised at any point in litigation, or an affirmative defense, waivable if not pleaded timely. A related issue is whether the trial court abused its discretion in denying Reliance leave to amend its pleadings to add an ERISA preemption defense.

A. ERISA Preemption

Whether ERISA preemption is jurisdictional or a waivable affirmative defense is a pure question of law that we review de Reliance argues that because there is a "compelling policy" in favor of application of federal ERISA law to this claim, ERISA preemption is jurisdictional ⁴ and therefore nonwaivable. ⁵ The foundation of the argument is ERISA's broad preemption provision: ERISA [with a few inapplicable exceptions] "shall supersede 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). One of Congress's intentions in enacting ERISA, as divined through legislative history, was to encourage the growth of private employee benefit plans by replacing diverse state laws with a nationally uniform federal common law regulating employee benefit plans. ⁶ Treating ERISA preemption as non-jurisdictional and therefore waivable would, so the argument goes, frustrate that intent, subjecting employee benefit plans to regulation and litigation under fifty non-uniform bodies of state law. The costs of adapting to and litigating under non-uniform state law and the potential for liability and damages beyond that permitted under ERISA would deter employers from enacting benefits plans. Thus, courts should hold that ERISA preemption is jurisdictional and not waivable, consistent with the congressional intent to create and apply a uniform federal law regulating employee benefit plans.

novo. See Correa v. Hospital San Francisco, 69 F.3d 1184, at 1193 (1st Cir.1995).

While the foregoing argument is not without merit, it is precluded by precedent. The Supreme Court analyzed at length the legislative history behind ERISA's preemption provision in Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 44-46, 52-57, 107 S.Ct. 1549, 1551-52, 1555-58, 95 L.Ed.2d 39 (1987), focusing on the civil enforcement scheme of Sec. 502(a) of ERISA (29 U.S.C. Sec. 1132(a)), under which a plan participant can bring a suit for benefits due. The Court concluded that Congress intended to create an exclusive federal remedy, with a "pre-emptive force ... modeled after Sec. 301" of the Labor Management Relations Act ("LMRA"), 29 U.S.C. Sec. 185. Pilot Life, 481 U.S. at 52, 107 S.Ct. at 1555. Accordingly, the Court held that ERISA preempts all state law causes of action for benefits due under an ERISA plan. Id. at 57, 107 S.Ct. at 1558. Pilot Life did not present the question whether ERISA preemption was a jurisdictional matter or a waivable defense, but the Supreme Court made clear that courts deciding the scope of ERISA preemption should look to LMRA preemption decisions for guidance. Id. at 54-55, 107 S.Ct. at 1556-57.

The Pilot Life decision explains that ERISA's preemption clause and civil enforcement scheme entirely displaced state law causes of action for benefits claims under ERISA plans. Id. at 55-57, 107 S.Ct. at 1557-58. If state law is "displaced," then arguably there is no subject matter jurisdiction over a state law cause of action for benefits due. Lack of subject matter jurisdiction is, of course, a nonwaivable defense and may be raised at any time. Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 2104, 72 L.Ed.2d 492 (1982). That jurisdictional argument is unavailing, however, because this Circuit has squarely held that LMRA preemption is waivable. Sweeney v. Westvaco Co., 926 F.2d 29, 40 (1st Cir.) (Breyer, C.J.), cert. denied, 502 U.S. 899, 112 S.Ct. 274, 116 L.Ed.2d 226 (1991). Given that the Supreme Court in Pilot Life explicitly directed courts to treat ERISA preemption like LMRA preemption, 481 U.S. at 51-56, 107 S.Ct. at 1554-57, Judge (now The rationale behind Sweeney's holding that LMRA preemption is waivable applies with equal force to ERISA preemption. The Sweeney court began with an analysis of International Longshoremen's Ass'n v. Davis, 476 U.S. 380, 106 S.Ct. 1904, 90 L.Ed.2d 389 (1986), a National Labor Relations Act ("NLRA") preemption case. See 29 U.S.C. Secs. 157, 158. In Davis, the Supreme Court held that NLRA preemption is jurisdictional, and therefore nonwaivable, because NLRA preemption dictates the choice of forum (i.e., whether a court or the National Labor Relations Board ("NLRB") has the power to hear the case) as opposed to simply the choice of law (i.e., whether state or federal law applies). See id. at 398-99, 106 S.Ct. at 1916-17. Sweeney stressed that the Supreme Court itself carefully limited its holding in Davis to Secs. 7 and 8 of the NLRA and not other statutes. Sweeney, 926 F.2d at 38. Those sections evidence a Congressional intent to "refuse[ ] to permit parties to submit such a dispute to the courts even where the parties themselves wished to do so." Id. at 38-39. In Sweeney, this court determined that LMRA preemption, unlike NLRA preemption, "concerns what law a decision maker must apply, not what forum must decide the dispute." 926 F.2d at 39. Based on that premise, the panel in Sweeney applied the converse of the Davis rule, holding that LMRA preemption is waivable...