Nelson, Roy G. v. United Steelwo 12213

In the

United States Court of Appeals

For the Seventh Circuit

____________

Nos. 03-4026 & 03-4027

ROY G. NELSON, CLARENCE ALSIP,

CHARLES ANDREWS, et al.,

Plaintiffs-Appellants,

Cross-Appellees,

v.

JOHN STEWART, DONALD R. SAY, et al.,

Defendants-Appellees,

Cross-Appellants,

and

UNITED STEELWORKERS OF AMERICA,

LOCAL UNION #12213,

Defendant-Appellee.

____________

Appeals from the United States District Court

for the Southern District of Indiana, Indianapolis Division.

No. 00 C 1734—Richard L. Young, Judge.

____________

ARGUED JANUARY 21, 2005—DECIDED AUGUST 29, 2005

____________

Before RIPPLE, WOOD and SYKES, Circuit Judges.

RIPPLE, Circuit Judge. Retired bargaining unit workers

(“retirees”) of Indiana Steel and Wire Company (“ISW”)

2 Nos. 03-4026 & 03-4027

filed this state common law action in Indiana state court

against the United Steelworkers of America, Local Union

12213 and the United Steelworkers of America, AFL-CIO

(collectively, “Union”), as well as individual union members

(“individual defendants”). The Union removed the case to

the district court. The district court determined that removal

was proper because the claims against the Union presented

a federal question. See 28 U.S.C. § 1441(a). It later granted

summary judgment in favor of the Union on statute of

limitations grounds. The district court then exercised its

discretion to remand to state court the retirees’ claims

against the individual defendants, over which the court

believed it had only supplemental jurisdiction. The parties

have cross-appealed. For the reasons set forth in the follow-

ing opinion, we now affirm in part, and reverse and remand

in part the judgment of the district court.

I

BACKGROUND

A. Facts

In March 1998, the Union negotiated a collective bar-

gaining agreement on behalf of the production employees

at ISW’s Muncie, Indiana plant. Three months later, ISW

filed a petition for relief under Chapter 11 of the Bankruptcy

Code. The Union and ISW then entered into negotiations for

the modification of the March 1998 collective bargaining

agreement. The parties sought to achieve sufficient cost

savings to enable ISW to continue operating and to reorga-

nize. Briefly, through the course of the bankruptcy process,

the Union and the individual defendants repeatedly assured

the retirees that their health insurance benefits were not a

topic of negotiation and that the retirees did not need their

Nos. 03-4026 & 03-4027 3

own representation in the negotiations with ISW.

On August 7, 1998, ISW filed a motion, in accordance with

11 U.S.C. §§ 1113 and 1114, in the bankruptcy court seeking

permission to reject the March 1998 collective bargaining

agreement and to modify the contract benefits of the retired

bargaining unit members. On August 24, 1998, Durrell

Corporation (“Durrell”) made an offer to purchase all of

ISW’s assets subject to the approval of the bankruptcy court.

The Union pursued collective bargaining negotiations with

Durrell in the event that Durrell successfully purchased the

assets of ISW. In September, the local union membership

ratified ISW’s final proposal to modify the March 1998

collective bargaining agreement. The new agreement

terminated the health coverage of the retirees and modified

other retiree benefits. At this time, the local union member-

ship also ratified the final purchase offer by Durrell. On

October 12, 1998, the bankruptcy court issued an order

approving ISW’s and the Union’s agreement to reject the

March 1998 collective bargaining agreement and to imple-

ment the modified contract. On October 23, 1998, the

bankruptcy court approved the sale of ISW to Durrell. The

final contract of sale did not provide for retiree medical

coverage.

After the retirees learned that they had lost their health

care benefits, they filed suit against the Union and the

individual defendants in state court; the suit alleged

negligence, misrepresentation and promissory estoppel.

B. District Court Proceedings

The Union removed this action to federal court, and the

retirees filed a motion to remand. The district court deter-

mined that the retirees’ state-law claims against the Union

were subject to complete preemption because any purported

4 Nos. 03-4026 & 03-4027

duty of the Union to represent the retirees during ISW’s

bankruptcy process was derived from and was dependent

on federal law. Specifically, § 1114 of the Bankruptcy Code

provides:

A labor organization shall be, for purposes of this

section, the authorized representative of those per-

sons receiving any retiree benefits covered by any

collective bargaining agreement to which that labor

organization is a signatory, unless (A) such labor

organization elects not to serve as the authorized

representative of such persons, or (B) the court, upon a

motion by any party in interest, after notice and hear-

ing, determines that different representation of such

persons is appropriate.

11 U.S.C. § 1114(c)(1). The district court perceived no

real difference between the Union’s role as the retirees’

statutory representative in this case and a union’s duty

of fair representation when it acts as the exclusive represen-

tative of its bargaining unit members in collective bargain-

ing agreements under section 301 of the Labor Management

Relations Act (“LMRA”), 15 U.S.C. § 185. Therefore, the

district court applied cases in which courts have held that

fair duty of representation claims are federal in character,

even if pleaded under state law, because they fall within the

field of law wholly occupied by the national labor laws. See

BIW Deceived v. Local S6, Indus. Union of Marine & Shipbuild-

ing Workers of America, IAMAW, Dist. Lodge 4, 132 F.3d 824

(1st Cir. 1997). The district court accordingly held that it had

original jurisdiction over the retirees’ claims against the

Union and that removal was appropriate.

The district court then granted summary judgment in

favor of the Union on the ground that the retirees’ claims

were barred by the federal statute of limitations.

Nos. 03-4026 & 03-4027 5

The district court then turned to the claims against the

individual defendants. It determined that it had supplemen-

tal jurisdiction over the claims because they were part of the

same case or controversy as the claims against the Union.

See 28 U.S.C. § 1367. The court initially decided to exercise

its supplemental jurisdiction, and it ordered supplemental

briefs on the issue of the individual defendants’ immunity

from suit. Upon the parties’ briefs, the district court con-

cluded that case law holding that individual union members

are immune from liability for actions taken in relation to a

collective bargaining agreement covered by section 301 of

the LMRA did not extend to actions individual union

members take in relation to negotiations under 11 U.S.C. §

1114. After so ruling the district court decided in the same

order that, because it had dismissed all claims over which it

had original jurisdiction, it would not continue to exercise

jurisdiction over the retirees’ state-law claims against the in-

dividual defendants. Accordingly, the district court re-

manded those claims to the state court.

II

DISCUSSION

A. Standard of Review

We review a district court’s grant or denial of summary

judgment de novo. Tutman v. WBBM-TV, Inc./CBS, Inc., 209

F.3d 1044, 1048 (7th Cir. 2000). In doing so, we construe

all facts and reasonable inferences in the light most favor-

able to the nonmoving party. Id. Summary judgment is

proper if “the pleadings, depositions, answers to inter-

rogatories, and admissions on file, together with the affida-

vits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a

6 Nos. 03-4026 & 03-4027

judgment as a matter of law.” Fed. R. Civ. P. 56(c); Celotex

Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).

B. General Removal and Preemption Standards

A defendant may remove any civil action filed in state

court over which federal district courts have original

jurisdiction. 28 U.S.C. § 1441;1 Caterpillar Inc. v. Williams, 482

U.S. 386, 392 (1987). Federal district courts, in turn, have

original jurisdiction over “all civil actions arising under the

Constitution, laws, or treaties of the United States.” 28

U.S.C. § 1331. Ordinarily, a court must determine the

presence or absence of a federal question by examining only

the plaintiff’s well-pleaded complaint. Caterpillar Inc., 482

U.S. at 392. This rule requires that a federal question appear

on the face of the complaint. Bastien v. AT&T Wireless Servs.,

Inc., 205 F.3d 983, 986 (7th Cir. 2000) (citing Franchise Tax Bd.

1

Section 1441 states in relevant part:

Actions removable generally

(a) Except as otherwise expressly provided by Act of

Congress, any civil action brought in a State court of

which the district courts of the United States have

original jurisdiction, may be removed by the defendant

or the defendants, to the district court of the United

States for the district and division embracing the

place where such action is pending. . . .

(b) Any civil action of which the district courts have

original jurisdiction founded on a claim or right aris-

ing under the Constitution, treaties or laws of the United

States shall be removable without regard to the citizen-

ship or residence of the parties. . . .

28 U.S.C. § 1441(a)-(b).

Nos. 03-4026 & 03-4027 7

of California v. Constr. Laborers Vacation Trust for S. California,

463 U.S. 1, 10 (1983)). The plaintiff, as the master of his own

complaint, may avoid federal jurisdiction by pleading only

state-law claims. Id. Most often, a defendant raises federal

preemption as a defense to a state-law action. Caterpillar Inc.,

482 U.S. at 392. A case may not be removed, however, based

on a federal defense, “even if the defense is anticipated in

the plaintiff’s complaint, and even if both parties concede

that the federal defense is the only question truly at issue.”

Id.; see Beneficial Nat’l Bank v. Anderson, 539 U.S. 1, 6 (2003).

“On occasion, the Court has concluded that the pre-

emptive force of a statute is so ‘extraordinary’ that it

‘converts an ordinary state common-law complaint into one

stating a federal claim for purposes of the well-pleaded

complaint rule.’ ” Caterpillar Inc., 482 U.S. at 393 (quoting

Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 65 (1987)). This

“independent corollary” to the well-pleaded complaint

rule is known as the “complete preemption” doctrine. Id.

“Once an area of state law has been completely pre-empted,

any claim purportedly based on that pre-empted state law

is considered, from its inception, a federal claim, and

therefore arises under federal law.” Id.; see Beneficial Nat’l

Bank, 539 U.S. at 8 (“When the federal statute completely

pre-empts the state-law cause of action, a claim which

comes within the scope of that cause of action, even if

pleaded in terms of state law, is in reality based on federal

law.”). In such situations, the federal statute “not only pre-

empt[s] state law but also authorize[s] removal of actions

that sought relief only under state law.” Beneficial Nat’l Bank,

539 U.S. at 6-7.

B. Complete Preemption

8 Nos. 03-4026 & 03-4027

1.

The Supreme Court has applied the complete preemp-

tion doctrine in cases that raise claims preempted by section

301 of the LMRA. Caterpillar Inc., 482 U.S. at 393. Section 301

provides:

Suits for violation of contracts between an employer and

a labor organization representing employees in an

industry affecting commerce as defined in this chapter,

or between any such labor organizations, may be

brought in any district court of the United States having

jurisdiction of the parties, without respect to the amount

in controversy or without regard to the citizenship of

the parties.

29 U.S.C. § 185(a). Section 301 “governs claims founded

directly on rights created by collective-bargaining agree-

ments, and also claims ‘substantially dependent on analysis

of a collective bargaining agreement.’ ” 2 Caterpillar Inc., 482

U.S. at 394 (quoting Elec. Workers v. Hechler, 481 U.S. 851, 859

n.3 (1987), and citing Allis-Chalmers Corp. v. Lueck, 471 U.S.

202, 220 (1985)); see also Lingle v. Norge Div. of Magic Chef,

Inc., 486 U.S. 399, 405-06 (1988).

In Avco v. Aero Lodge No. 735, International Association of

Machinists & Aerospace Workers, 390 U.S. 557 (1968), the

plaintiff filed suit in state court alleging that it had a valid

contract with the union and seeking to enjoin the union

2

The retirees’ claims did not directly implicate section 301

because they were filed against the Union, not the employer.

See Wegscheid v. Local Union 2911, Int’l Union, United Auto.,

Aerospace & Agric. Implement Workers of America, 117 F.3d 986, 988

(7th Cir. 1997).

Nos. 03-4026 & 03-4027 9

from violating the agreement through its participation in,

and sanction of, work stoppages. More recently, the Court

explained its approach in Avco to section 301 preemption:

The Court of Appeals held . . . and we affirmed . . . that

the petitioner’s action “arose under” § 301, and thus

could be removed to federal court, although the peti-

tioner had undoubtedly pleaded an adequate claim for

relief under the state law of contracts and had sought a

remedy only under state law. The necessary ground of

decision was that the pre-emptive force of § 301 is

so powerful as to displace entirely any state cause

of action “for violation of contracts between an em-

ployer and a labor organization.” Any such suit is

purely a creature of federal law, notwithstanding the

fact that state law would provide a cause of action in the

absence of § 301. Avco stands for the proposition that if

a federal cause of action completely pre-empts a state

cause of action any complaint that comes within the

scope of the federal cause of action necessarily “arises

under” federal law.

Beneficial Nat’l Bank, 539 U.S. at 7 (quoting Franchise Tax

Bd. of California, 463 U.S. at 23-24). The Court has decided

that section 301 “not only provides federal-court jurisdiction

over controversies involving collective-bargaining agree-

ments, but also ‘authorizes federal courts to fashion a body

of federal law’ for the enforcement of these collective

bargaining agreements.” Lingle, 486 U.S. at 403 (quoting

Textile Workers v. Lincoln Mills of Alabama, 353 U.S. 448

(1957)).

The Court has discussed the necessity of recognizing

that section 301 effects complete preemption:

The dimensions of § 301 require the conclusion that

10 Nos. 03-4026 & 03-4027

substantive principles of federal labor law must be

paramount in the area covered by the statute. Compre-

hensiveness is inherent in the process by which the

law is to be formulated under the mandate of Lincoln

Mills, requiring issues raised in suits of a kind covered

by § 301 to be decided according to the precepts of

federal labor policy.

More important, the subject matter of § 301(a) “is

peculiarly one that calls for uniform law.” . . . The

possibility that individual contract terms might

have different meanings under state and federal

law would inevitably exert a disruptive influence

upon both the negotiation and administration of collec-

tive agreements. Because neither party could be certain

of the rights which it had obtained or conceded, the

process of negotiating an agreement would be made

immeasurably more difficult by the necessity of trying

to formulate contract provisions in such a way as to

contain the same meaning under two or more systems

of law which might someday be invoked in enforcing

the contract. Once the collective bargain was made, the

possibility of conflicting substantive interpretation

under competing legal systems would tend to stimulate

and prolong disputes as to its interpretation. Indeed, the

existence of possibly conflicting legal concepts might

substantially impede the parties’ willingness to agree to

contract terms providing for final arbitral or judicial

resolution of disputes.

The importance of the area which would be af-

fected by separate systems of substantive law makes the

need for a single body of federal law particularly

compelling. The ordering and adjusting of competing

interests through a process of free and voluntary

Nos. 03-4026 & 03-4027 11

collective bargaining is the keystone of the federal

scheme to promote industrial peace. State law which

frustrates the effort of Congress to stimulate the smooth

functioning of that process thus strikes at the very core

of federal labor policy. With due regard to the many

factors which bear upon competing state and federal

interests in this area, . . . we cannot help but conclude

that in enacting § 301 Congress intended doctrines of

federal labor law uniformly to prevail over inconsistent

local rules.

(Teamsters, Chauffeurs, Warehousemen & Helpers of America

v. Lucas Flour Co., 369 U.S. 95, 103-04 (1962) (quoted in

Lingle, 486 U.S. at 404 n.3 (citations omitted; footnote

omitted))).3

Closely related to claims implicating section 301, the

3

The Court also has held that section 502(a) of the Employee

Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1132, has

the same preemptive force as section 301 of the LMRA. See

Beneficial Nat’l Bank v. Anderson, 539 U.S. 1, 7 (2003); see also Rice

v. Panchal, 65 F.3d 637, 643 (7th Cir. 1995). The Court has ex-

plained that the statute’s text contains a specific preemption

provision and that its “jurisdiction subsection, § 502(f), used

language similar to the statutory language construed in Avco

[Corporation v. Aero Lodge No. 735, International Association of

Machinists & Aerospace Workers, 390 U.S. 557, 560 (1968)], thereby

indicating that the two statutes should be construed in the

same way.” Beneficial Nat’l Bank, 539 U.S. at 7-8 (citing Metro.

Life Ins. Co. v. Taylor, 481 U.S. 58, 65 (1987)). Furthermore, the

Court has said that the legislative history of ERISA clearly

evinces Congress’ intent to render section 502(a)(1)(B) suits

filed by plan participants into federal questions, “in similar

fashion to those brought under section 301 of the [LMRA].”

Id. at 8.

12 Nos. 03-4026 & 03-4027

Court long has implied from a labor union’s status as the

exclusive representative of workers in its bargaining

unit, see 29 U.S.C. § 159(a),4 a concomitant duty of the union

to represent its members fairly. Vaca v. Sipes, 386 U.S. 171,

177 (1967). This duty of fair representation requires the

union “to serve the interests of all members without hostil-

ity or discrimination toward any, to exercise its discretion

with complete good faith and honesty, and to avoid arbi-

trary conduct.” Id.

In Vaca, the plaintiff, who claimed that he was discharged

from his employment in violation of the collective bargain-

ing agreement, filed suit in state court against the union

alleging that it arbitrarily had refused to take his grievance

with the employer to arbitration. The Court in Vaca deter-

mined that the National Labor Relations Board did not have

exclusive jurisdiction over what essentially was a claim that

the union had breached its duty of fair representation. See

Vaca, 386 U.S. at 177-92. Notably, the Court based this

4

Section 9(a) of the National Labor Relations Act (“NLRA”)

provides in relevant part:

Representatives designated or selected for purposes of

collective bargaining by the majority of employees in a unit

appropriate for such purposes, shall be the exclusive repre-

sentatives of all the employees in such unit for the purposes

of collective bargaining in respect to rates of pay, wages,

hours of employment, or other conditions of employment.

29 U.S.C. § 159(a). In this case, the Union had no duty under

section 9(a) to represent the retirees in the collective bargaining

with ISW or Durrell because retired workers are not members of

the bargaining unit. See Allied Chem. & Alkali Workers of America,

Local Union No. 1 v. Pittsburg Plate Glass Co., Chem. Div., 404 U.S.

157, 181 n.20 (1971).

Nos. 03-4026 & 03-4027 13

conclusion on many considerations, including

some intensely practical considerations which fore-

close pre-emption of judicial cognizance of fair repre-

sentation duty suits, considerations which emerge from

the intricate relationship between the duty of fair

representation and the enforcement of collective bar-

gaining contracts. For the fact is that the question

of whether a union has breached its duty of fair repre-

sentation will in many cases be a critical issue in a suit

under L.M.R.A. § 301 charging an employer with a

breach of contract.

Id. at 183.

Some of our sister courts of appeals have concluded

that the statutory duty of fair representation has, in the con-

text of removal, the same preemptive force as does

section 301.5 In Richardson v. United Steelworkers of Amer--

ica, 864 F.2d 1162 (5th Cir. 1989), the Fifth Circuit concluded:

Avco recognized removal based on section 301’s com-

plete, displacing preemption of state law because of

congressional intent that federal (and state) courts create

and administer a comprehensive body of federal law for

5

Of course, it also has been recognized that fair representation

cases are grounded in federal law and are within the federal

question jurisdiction of the district court. See, e.g., Neal v. Newspa-

per Holdings, Inc., 349 F.3d 363 (7th Cir. 2003) (review-

ing plaintiffs’ “hybrid” section 301/fair representation action

against employer and union under federal law); Filippo v.

Northern Indiana Pub. Serv. Corp., Inc., 141 F.3d 744 (7th Cir. 1998)

(same); see also 2 The Developing Labor Law: The Board, the

Courts, and the National Labor Relations Act 2263-67 (Patrick

Hardin & John E. Higgins, Jr. eds., 4th ed. 2001 & Supp. 2004).

14 Nos. 03-4026 & 03-4027

the court enforcement of collective bargaining agree-

ments. Under Vaca, the NLRA duty of fair representa-

tion, for the enforcement of which a federal (and state)

court action is authorized, completely preempts state

law because of the congressional intent that federal law,

developed to further the goals of the NLRA, entirely

govern the duties which an NLRA collective bargaining

representative owes, by virtue of its position as such, to

the workers it represents in that capacity. We cannot

conceive that Congress intended complete displacive

preemption of the Avco variety in the section 301

context, but not in the context of the duty of fair repre-

sentation arising from a union’s status as an exclusive

collective bargaining agent under the NLRA.

Id. at 1169-70; accord BIW Deceived, 132 F.3d at 831. This view

is based on the Supreme Court’s recognition in Vaca of “the

unique role played by the duty of fair representation

doctrine in the scheme of federal labor laws, and its impor-

tant relationship to the judicial enforcement of collective

bargaining agreements.” Vaca, 386 U.S. at 188.

2.

We may assume for purposes of our decision today that

our sister circuits have decided correctly that a union’s

implied duty of fair representation involving a section 301

contract effects complete preemption. Here, the Union seeks

to extend further that preemption. It submits that, like

section 301 and the judicially implied duty of fair represen-

tation, § 1114 necessitates a body of federal law such that

any state-law action that alleges that a union assumed, and

later breached, a duty to represent retired bargaining unit

members in a Chapter 11 case arises only under federal law.

Nos. 03-4026 & 03-4027 15

As such, state law provides no independent source of rights

for retired bargaining unit members in situations in which

the union undertakes to represent them in bankruptcy

proceedings.

We shall begin our inquiry with the text of § 1114. The

statute is designed to protect retired workers—both those

that are part of a collective bargaining unit and those

that are not—by providing them with representation in

Chapter 11 cases in which the debtor seeks to modify or

terminate retiree benefits.6 For retired workers who are

receiving retiree benefits based on a collective bargaining

agreement, the statute designates the labor union that

was the signatory of that contract as the presumptive

representative, unless it elects not to serve, or if the court, on

motion of a party in interest, determines that differ-

ent representation is appropriate. 11 U.S.C. § 1114(c)(1).7

6

The statute defines the term “retiree benefits” as

payments to any entity or person for the purpose of provid-

ing or reimbursing payments for retired employees and their

spouses and dependents, for medical, surgical, or hospital

care benefits, or benefits in the event of sickness, accident,

disability, or death under any plan, fund, or program

(through the purchase of insurance or otherwise) maintained

or established in whole or in part by the debtor prior to filing

a petition commencing a case under this title.

11 U.S.C. § 1114(a).

7

Section 1114(c) states:

(c)(1) A labor organization shall be, for purposes of this

section, the authorized representative of those persons

receiving any retiree benefits covered by any collective

bargaining agreement to which that labor organization is

(continued...)

16 Nos. 03-4026 & 03-4027

In cases in which the union elects not to serve as the repre-

sentative, or the court finds the union should not serve, §

1114 provides that the court shall, on motion of a party in

interest, appoint a committee comprised of retired employ-

ees, if the debtor seeks to modify or terminate retiree

benefits or if the court otherwise deems such representation

to be appropriate. Id. The commentary to § 1114 recognizes

that a critical feature of the statute is the ability of retirees to

have representation separate from the labor union in a

Chapter 11 case. This is because an inherent conflict of

interest exists between current workers and retired workers,

even when both are covered by the same collective bargain-

ing agreement. “If resources run short and the collective

(...continued)

signatory, unless (A) such labor organization elects not

to serve as the authorized representative of such persons,

or (B) the court, upon a motion by any party in interest, after

notice and hearing, determines that different representation

of such persons is appropriate.

(2) In cases where the labor organization referred to in

paragraph (1) elects not to serve as the authorized repres-

entative of those persons receiving any retiree benefits

covered by any collective bargaining agreement to which

that labor organization is signatory, or in cases where the

court, pursuant to paragraph (1) finds different representa-

tion of such persons appropriate, the court, upon a motion by

any party in interest, and after notice and a hearing, shall

appoint a committee of retired employees if the debtor seeks

to modify or not pay the retiree benefits or if the court

otherwise determines that it is appropriate, from among such

persons, to serve as the authorized representative of such

persons under this section.

11 U.S.C. § 1114(c).

Nos. 03-4026 & 03-4027 17

bargaining agreement needs to be modified, then greater

cuts to retiree benefits will necessarily leave more funds

available for current wages.” Daniel Keating, Bankruptcy

Code § 1114: Congress’ Empty Response to the Retiree Plight, 67

Am. Bankr. L.J. 17, 33 (1993).

In situations in which no collective bargaining agreement

governs, the court shall, on motion of a party in interest,

appoint a representative committee of retired employees

if the debtor seeks to modify or terminate retiree benefits, or

if the court deems it otherwise appropriate. 11 U.S.C.

§ 1114(d).8

Section 1114 further protects retirees in Chapter 11 cases

by establishing procedures and standards that must be

satisfied before the debtor may unilaterally modify the

payment of such benefits. The statute provides that the

trustee (which includes a debtor in possession), “shall

timely pay and shall not modify any retiree benefits,”

unless: (1) the court, on motion of the trustee or authorized

representative, and after notice and a hearing, orders

modification of such payments; or (2) the trustee and

the authorized representative agree to modification of

8

Section 1114(d) reads:

(d) The court, upon a motion by any party in interest, and

after notice and a hearing, shall appoint a committee of

retired employees if the debtor seeks to modify or not pay

the retiree benefits or if the court otherwise determines that

it is appropriate, to serve as the authorized representative,

under this section, of those persons receiving any retiree

benefits not covered by a collective bargaining agreement.

11 U.S.C. § 1114(d).

18 Nos. 03-4026 & 03-4027

such payments. Id. § 1114(e)(1).9 Prior to the filing of an

application seeking to modify retiree benefits, § 1114(f)

requires: (1) that the trustee make a proposal to the re-

tirees’ authorized representative, which provides for the

modifications in the retiree benefits that are necessary

to permit the debtor to reorganize and which assures that all

creditors, the debtors and all affected parties are treated

fairly and equally; (2) that the proposal be based on the

most complete and reliable information available at that

time; (3) that the trustee provide the authorized representa-

tive with the relevant information necessary to evaluate the

proposal; and (4) that, between the time the proposal is

made and the hearing date, the trustee meet with the

authorized representative at reasonable times and confer in

good faith in an attempt to reach a mutually satisfactory

9

Section 1114(e)(1) reads:

Notwithstanding any other provision of this title, the debtor

in possession, or the trustee if one has been appointed under

the provisions of this chapter (hereinafter in this section

“trustee” shall include a debtor in possession), shall timely

pay and shall not modify any retiree benefits, except that—

(A) the court, on motion of the trustee or authorized

representative, and after notice and a hearing, may order

modification of such payments, pursuant to

the provisions of subsections (g) and (h) of this sec-

tion, or

(B) the trustee and the authorized representative of the

recipients of those benefits may agree to modification of

such payments,

after which such benefits as modified shall continue to be

paid by the trustee.

11 U.S.C. § 1114(e)(1).

Nos. 03-4026 & 03-4027 19

modification of the retiree benefits. Id. § 1114(f)(1)-(2).10 A

bankruptcy court can approve the debtor’s motion for

modification of retiree benefits only if it finds: (1) that the

conditions of § 1114(f) are met; (2) that the authorized

representative refused without good cause to accept the

trustee’s proposal for modification; (3) that all affected

parties are treated equally and fairly; and (4) that such

modification is favored by a balancing of the equities. Id. §

1114(g).11

10

Section 1114(f) reads:

(1) Subsequent to filing a petition and prior to filing

an application seeking modification of the retiree bene-

fits, the trustee shall—

(A) make a proposal to the authorized representative

of the retirees, based on the most complete and reli-

able information available at the time of such pro-

posal, which provides for those necessary modifica-

tions in the retiree benefits that are necessary to permit

the reorganization of the debtor and assures that all

creditors, the debtor and all of the affected parties are

treated fairly and equitably; and

(B) provide, subject to subsection (k)(3), the representa-

tive of the retirees with such relevant information as

is necessary to evaluate the proposal.

(2) During the period beginning on the date of the making of

a proposal provided for in paragraph (1), and ending on the

date of the hearing provided for in subsection (k)(1), the

trustee shall meet, at reasonable times, with the authorized

representative to confer in good faith in attempting to reach

mutually satisfactory modifications of such retiree benefits.

11 U.S.C. § (f).

11

Section 1114(g) states:

(continued...)

20 Nos. 03-4026 & 03-4027

With this understanding of § 1114 in mind, we turn to

the application of the complete preemption doctrine. Our

11

(...continued)

The court shall enter an order providing for mod-

ification in the payment of retiree benefits if the court finds

that—

(1) the trustee has, prior to the hearing, made a pro-

posal that fulfills the requirements of subsection (f);

(2) the authorized representative of the retirees has refused

to accept such proposal without good cause; and

(3) such modification is necessary to permit the reor-

ganization of the debtor and assures that all creditors,

the debtor, and all of the affected parties are treated

fairly and equitably, and is clearly favored by the balance

of the equities;

except that in no case shall the court enter an order provid-

ing for such modification which provides for a modifica-

tion to a level lower than that proposed by the trustee in

the proposal found by the court to have complied with

the requirements of this subsection and subsection (f):

Provided, however, That at any time after an order is entered

providing for modification in the payment of retiree benefits,

or at any time after an agreement modifying such benefits is

made between the trustee and the authorized representative

of the recipients of such benefits, the authorized representa-

tive may apply to the court for an order increasing those

benefits which order shall be granted if the increase in retiree

benefits sought is consistent with the standard set forth in

paragraph (3): Provided further, That neither the trustee nor

the authorized representative is precluded from making

more than one motion for a modification order governed by

this subsection.

11 U.S.C. § 1114(g).

Nos. 03-4026 & 03-4027 21

inquiry must bear in mind that “determinations about

federal jurisdiction require sensitive judgments about

congressional intent, judicial power, and the federal

system.” Merrell Dow Pharm., Inc. v. Thompson, 478 U.S. 804,

810 (1986). After careful scrutiny of § 1114’s statutory

scheme, we are convinced that, for purposes of complete

preemption analysis, the analogy the district court drew

between a union’s role in the § 1114 context and in the

section 301 context falters.

The legislative history of § 1114, as well as its operation,

reveals that the statute was designed to serve the limited

role of providing retirees with representation in bankruptcy

proceedings. Prior to the enactment of § 1114, retired

workers whose benefits were covered by a union contract

faced the risk that the employer-debtor unilaterally would

reject the collective bargaining agreement and thereby

convert the retired workers’ non-pension benefits into a

general unsecured claim. See Dan Keating, Good Intentions,

Bad Economics: Retiree Insurance Benefits in Bankruptcy, 43

Vand. L. Rev. 161, 171 (1990). Similarly, retired workers

whose benefits were not part of a collective bargaining

agreement had no special priority to a company’s assets in

a Chapter 11 reorganization. See id. at 170. If their benefits

were vested, the retired workers could file a claim in the

bankruptcy proceeding, but that claim was an unsecured

claim based on breach of contract. See id.

In 1984, Congress enacted § 1113 of the Bankruptcy

Code in order to protect the interests of employees of

Chapter 11 debtors who were covered by collective bargain-

ing agreements. Under § 1113, a debtor in possession or

trustee may not unilaterally reject any provision of a

collective bargaining agreement except in accordance with

the requirements of the statute. 11 U.S.C. § 1113(a). How-

22 Nos. 03-4026 & 03-4027

ever, courts had diverging views as to whether § 1113

extended to retired workers. See Alan N. Resnick & Henry

J. Sommer, Collier on Bankruptcy app. E, at 8-10, 8-13

(15th ed. rev. 2004) (“Collier on Bankruptcy”). The inade-

quacy of the representation afforded to retired workers

during the bankruptcy process gained Congress’ attention

in July 1986, when LTV Steel Company filed a Chapter 11

petition and announced that it immediately would stop

paying health benefits to its 78,000 retired employees. Id. at

App. Pt. 8-11.

In response to public outcry, Congress enacted stopgap

legislation. See Daniel Keating, Bankruptcy Code § 1114:

Congress’ Empty Response to the Retirees Plight, 67 Am. Bankr.

L.J. 17, 47 (1993) (stating that, when Congress enacted § 1114

“it was obvious that the legislation was purely a reaction to

the problems raised in the LTV case” as a “bandaid solution

to the problem of unfunded retiree health benefits”). After

extending the legislation twice, Congress enacted the Retiree

Benefits Bankruptcy Protection Act of 1988, Pub. L. No. 100-

334, 102 Stat. 610.

Congress’ foremost concern in enacting § 1114 was

providing “additional protections for the insurance

benefits of retirees” when companies file a Chapter 11

bankruptcy. See S. Rep. 100-19 at 683, reprinted in 1988

U.S.S.C.A.N. 683. Numerous statements made by members

of Congress on the floor in enacting the statute support

this conclusion. For instance, Senator Heinz stated:

The Congress was also concerned over the treatment of

retirees after a company filed for bankruptcy. Once the

retirees lost their benefits they were forced by the

bankruptcy law to go to the end of the line of creditors

and patiently wait for years to get a small cash settle-

ment. While chapter 11 reorganization seemed to work

Nos. 03-4026 & 03-4027 23

to protect the interests of the major, and usually se-

cured, creditors, it left the retirees totally exposed

to catastrophic medical losses while bankruptcy lawyers

bickered over the reorganization plan. The retirees had

no way to make their concerns known to the court

during bankruptcy.

....

The bill will protect retirees from unilateral termina-

tion of benefits by a company filing a chapter 11 bank-

ruptcy petition. Health and life insurance benefits

would be continued throughout the proceedings unless

it was necessary to discontinue them to keep the com-

pany alive. This bill will also finally give re-

tirees adequate representation in the bankruptcy pro-

ceedings.

134 Cong. Rec. S6823-27, at 6827 (daily ed. May 26, 1988),

reprinted in Collier on Bankruptcy app. E, at 8-48. Similarly

Representative Edwards stated:

It is important that we pass this bill in order to give

retirees peace of mind by removing the possibility of

any sudden and unilateral termination of retiree

health benefits. Retired workers are often completely

dependent on these benefits. If such benefits are cut

off—as happened when one major corporation filed

[for] bankruptcy—retirees may not be able to replace

them because of high cost or lack of insurability. Al-

though H.R. 2969, as brought up today, is not per-

fect legislation, it will protect retiree benefits as much as

possible in a bankruptcy.

134 Cong. Rec. H3486-91, at 3488 (daily ed. May 23, 1988),

reprinted in Collier on Bankruptcy app. E, at 8-34.

24 Nos. 03-4026 & 03-4027

Section 1114’s statutory scheme and Congress’ ex-

pressed intent indicates that the statute was enacted to

achieve the very specific and focused objective of protecting

retiree benefits from unilateral termination. It permits the

bankruptcy court to determine whether retirees ought to be

represented by the union or some other entity when their

retirement benefits are at stake in a Chapter 11 proceeding.

It further sets forth a process which the bankruptcy court

must follow in order to ensure that the interest of retirees in

their benefits are accorded equal and fair treatment in the

shaping of the court’s remedial decree. We do not discern in

this focused statutory provision any congressional intent,

expressed or implied, of a preemptive force so “powerful”

as to preempt entirely every aspect of the relationship

between the retirees and the entity representing them.

Franchise Tax Bd., 463 U.S. at 23-24. Notably, § 1114 does not

purport to provide any federal cause of action for inade-

quate representation. Nor does the legislative history of the

section “unambiguously describe[] an intent to treat such

actions as ‘arising under the laws of the United States in

similar fashion to those brought under section 301 of the

Labor-Management Relations Act of 1947.’ ” Beneficial Nat’l

Bank, 539 U.S. at 8 (quoting Metro. Life Ins. Co., 481 U.S. at

65-66). Specifically, we can discern no intent on the part of

Congress in enacting this bankruptcy provision to provide

an exclusive federal remedy governing the relationship of

the retirees and the entity representing them before the

bankruptcy court. See id.

As we noted earlier, the Supreme Court pointed out

in Lingle, 486 U.S. at 403-05, that, in interpreting section

301 of the LMRA, the Court was able to discern quite clearly

that Congress, in enacting that provision, not only had

created a statutory cause of action for the violation of a labor

agreement, see id. (citing Lincoln Mills, 353 U.S. at 451), but

Nos. 03-4026 & 03-4027 25

also had authorized the creation of a substantive common

law of collective bargaining agreements, see id. (citing Lucas

Flour, 369 U.S. at 103-04). Thus, in interpreting and applying

section 301, a court must apply, necessarily, the federal

policy of our national labor laws. See Lincoln Mills, 353 U.S.

at 456-57. Any action arising under that statute is therefore

based on federal law and is removable because it arises

under the laws of the United States. See Avco, 390 U.S. at

570.

The same policy concerns simply are not at stake in the

situation before us today. In deciding an issue under § 1114,

the bankruptcy court’s focus is not the text of the collective

bargaining agreement from which the retirees’ benefits are

derived, but on ensuring that those rights are treated “fairly

and equitably” in fashioning the final plan of reorganiza-

tion. Although the court has certain responsibilities, out-

lined in the statute, to select an entity that will represent the

interests of the retirees so that the court’s objective can be

achieved, the statute contains no indication that Con-

gress intended that federal law displace state law with

respect to all aspects of that relationship.

Although we do not believe that § 1114 carries with it

a preemptive force so powerful that it completely pre-

empts the area, we do not rule out the possibility that viable

defenses based on federal law, including § 1114, may well

preempt otherwise valid state-law based causes of action.

This is a matter, however, for the defendants to present to

the state courts as a matter of defense.12

12

Because we conclude that the district court erred by not

remanding to state court the retirees’ claims against the Union,

we also conclude that the district court properly remanded the

claims against the individual defendants.

26 Nos. 03-4026 & 03-4027

Conclusion

For the foregoing reasons, we reverse the district court’s

denial of the retirees’ motion to remand to state court

their claims against the Union. We affirm the district court’s

remand of the retirees’ claims against the individ-

ual defendants. The plaintiffs may recover their costs

in this court.

AFFIRMED in part;

REVERSED and REMANDED in part

A true Copy:

Teste:

_____________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit

USCA-02-C-0072—8-29-05