PASADENA, Calif. - The 9th Circuit Court of Appeals has ruled ERISA doesn't pre-empt state laws when the heart of the claim is a wrongful discharge.
The decision in Campbell vs. The Aerospace Corp. is the latest in a long line of court cases narrowing the scope of instances in which the Employee Retirement Income Security Act may pre-empt state law.
In this case, the employee - Fred D. Campbell - sued in state court, charging he was dismissed in retaliation for whistleblowing. The plaintiff said he was entitled to punitive damages because the employer sought with malice to deny him his pension benefits.
However, the appeals court ruled ERISA didn't pre-empt state law, despite the employee's claim that his former employer knew he would lose his retirement benefits when he was discharged.
In the decision, the appeals court said the plaintiff was just "punctuating the wrongful conduct" by pointing out the employer knew his firing would result in lost pension benefits.
The decision reinforces others in recent years that have said employers cannot move state suits to federal court based on ERISA pre-emption, when the lawsuit is not for wrongful denial of retirement benefits.
"In this particular case, the majority felt that the plaintiff was using loss of benefits as simply a part of his argument to get punitive damages, not a motivating factor in his discharge," explained Jerry Uslander, principal at William M. Mercer Inc., Deerfield, Ill.
Added Kathy Bakich, an attorney with Mercer's Washington office : "This case reaffirms that if the pension loss is just a mere consequence of the discharge, then the case will not be removable to federal court."
The number of ERISA pre-emption cases has increased in recent years, Mr. Uslander said. At the same time, courts have narrowed the scope under which ERISA may pre-empt state law.
"Years ago, ERISA pre-emption was thought of as being very broad. If there was any relationship to a benefit plan covered by ERISA, then ERISA controlled it. That's been changing in light of Supreme Court decisions," Mr. Uslander said.
According to Mr. Uslander, one of the key cases took place in 1994 and involved Travelers Insurance Co. and the state of New York.
"In that case, the Supreme Court overturned the lower courts' decisions," he explained. "The case involved several commercial insurers, acting as fiduciaries of ERISA plans, who sued to invalidate New York hospital surcharges. The lower courts agreed with the insurers, but the Supreme Court reversed and held the surcharges were not pre-empted by ERISA. The court found that there wasn't the proper nexus just because these insurers who had to pay the surcharge insured ERISA plans. There has to be a real direct relationship to benefits before ERISA pre-emption can occur."As well, there have been many more challenges to ERISA pre-emption. The majority in this case, (Campbell vs. The Aerospace Corp.), ruling against ERISA pre-emption, is in keeping with the trend to narrow."
Bill Boies, an attorney with McDermott, Will & Emery, Chicago, agreed there are more cases involving ERISA pre-emption and that the scope of ERISA has narrowed. But he added, "Despite the narrowing, the pattern is that if the case is primarily a benefits dispute, the courts will find it has to be pursued under ERISA."
In addition, he said, "If an employee is terminated in order to keep him from receiving benefits, if that's what is alleged, that claim will typically be heard under ERISA.
"However, if an employee is terminated for another reason, such as whistle-blowing, that claim will almost always be heard under state law."
According to Mr. Boies, there are a number of reasons an employer would choose to pursue an ERISA pre-emption. "First, there is a very consistent body of law, as there's been a lot of very clear ERISA decisions," he said. "Second, you also get a focus on what your benefit documents say instead of many collateral facts. And thirdly, you get some reduced exposure to jury trials and punitive damages."
Mercer's Mr. Uslander said the increase in ERISA-related lawsuits, and their attempted pre-emptions, is testing the patience of many judges. "The courts are starting to get perturbed by the volume of such cases," he said.
Ms. Bakich added the frustration level is particularly high in the 9th Circuit. "There are numerous vacancies in the circuit and the federal courts are really overwhelmed," she explained. The 9th Circuit covers California, Hawaii, Oregon, Washington, Arizona, Montana, Nevada, Idaho and Alaska.
Ms. Bakich's view isn't entirely shared by Mr. Boies. "Federal judges are very busy, but what they're doing on these types of cases is merely adjusting their rulings to the series of decisions from the Supreme Court that further define ERISA pre-emption scope," he said.
"As they've become narrower about what is and isn't pre-empted by ERISA in recent years, the marginal cases aren't being pre-empted. The lower courts are simply following the lead of the Supreme Court. However, if a case has to do with a claim for benefits, the courts at all levels are continuing to apply the pre-emption," Mr. Boies said.
Those interviewed agreed the trend to push for ERISA pre-emption will continue.
"I see a general trend of more litigation by plan participants and more disputes in court regarding pre-emption," explained Mr. Boies.
Added Mr. Uslander: "There's no reason they won't increase in number. And the apparent recent resurgence of unions, given the recent UPS experience, may add to the number of employment-related cases in court. Unions may be inclined to either inject themselves on behalf of employees or encourage employees to bring these actions."