Don Ray Smith v. Cmta-Iam Pension Trust

TASHIMA, District Judge,

concurring in part and dissenting in part:

I concur in the majority’s analysis and disposition of the first two issues raised on this appeal, including its disposition of appellant’s ERISA claim. However, I am unable to agree with the majority’s disposition of his state law claim and, in my view, it is unnecessary to reach the issue of whether or not it was error for the district court to refuse to consider appellant’s late-filed affidavit. Therefore, I respectfully dissent from those portions of the majority’s opinion.

One of the grounds on which appellant bases his contention that appellees’ refusal to pay him his vested pension benefits was wrongful is that the suspension clause of the CMTA-IAM Pension Plan (the “Plan”) is contrary to state law. There is no dispute that California law governs, unless preempted by the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 , et seq. (“ERISA”).

The Plan’s suspension provisions provide that already-vested pension benefits of a retired member of the Plan are subject to suspension if, after retirement, the member is employed by another employer who participates in the (multi-employer) Plan or is employed in the same industry, whether or not the employer is a participating employer in the Plan. Thus, under the Plan, pension benefits are subject to suspension even if, as is the case here, the subsequent employer makes no contributions to the Plan on the employee’s account or even if the subsequent employer is not a member of the Plan, so long as that employer is engaged in the “metal trades industry.”

The provision of state law which appellant contends is violated by these suspension provisions, Cal.Bus. & Prof. Code § 16600, provides:

“Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

The majority concludes that appellant’s state law claim is meritless by adding to *662 § 16600 two requirements which are neither present in the statute nor found in the California cases construing it. The majority construes § 16600 as voiding forfeiture clauses only where “the employees’ loss of rights were absolute and the employers’ motive behind including such provisions was to limit business competition.” Majority opinion at 660. The majority, thus, concludes that the suspension clause in issue here does not violate § 16600 because these two criteria are not met. “The Plan’s suspension clause in this case neither led to forfeiture of all appellant’s pension rights nor was implemented in order for an employer to inhibit possible business competition.” Maj. op. at 661 (emphasis added).

The leading and authoritative case is Muggill v. Reuben H. Donnelley Corp., 62 Cal.3d 239 , 42 Cal.Rptr. 107 , 398 P.2d 147 (1965). There is nothing in the California Supreme Court’s opinion in that case which intimates that the two requirements contended for by the majority are essential elements of § 16600. Nowhere is it even implied that inhibition of “possible business competition” must be found before a violation of § 16600 can be established. 1 As for the purported requirement that the forfeiture be “absolute” and that all of an employee’s pension rights be forfeited, the provision which was invalidated in Muggill in fact permitted forfeiture or suspension. Id. at 240 n. 1, 42 Cal.Rptr. 107 , 398 P.2d 147 . One would think that because of § 16600’s “to that extent void” provision, that if the California Supreme Court intended to construe the statute to require absolute forfeiture of all rights, that it would have voided only the forfeiture provision and not the suspension provision.

The other cases relied on by the majority are equally deficient as authority supporting its position. Monogram Indus., Inc. v. Sar Indus., Inc., 64 Cal.App.3d 692 , 134 Cal. Rptr. 714 (1976) is completely inapposite. As the majority recognizes, that case involved a claim under Bus. & Prof. Code § 16601, not § 16600. As § 16600 itself provides (“Except as provided in this chapter”), and as Monogram recognizes, the § 16601 situation is expressly excepted from § 16600’s reach:

“In California with certain limited exceptions a contract under which a person is prevented from engaging in a profession, trade or business is void (Bus. & Prof. Code § 16600.) The specific exception relevant here is found in Business and Professions Code section 16601. . . . ”

Id. at 697, 134 Cal.Rptr. 714 . There is no contention here that the exception created by § 16601, pertaining to the sale of the goodwill of a business, is applicable. Monogram also goes on to observe that, “Covenants arising out of the sale of a business are more liberally enforced then those arising out of the employer-employee relationship.” Id.

Both Buskuhl v. Family Ins. Co., 271 Cal. App.2d 514 , 76 Cal.Rptr. 602 (1969), and Gordon v. Wasserman, 153 Cal.App.2d 328 , 314 P.2d 759 (1957) (relied on in Buskuhl), are unfair competition cases, involving the misappropriation of trade secrets and other breaches of confidence by former employees. In Buskuhl , in fact, the court found the unfair competition claims to be dispositive and expressly declined to reach the § 16600 issue. 271 Cal.App.2d at 523 , 76 Cal.Rptr. 602 . While prevention of ex-employee unfair competition is well recognized in California, see, e. g., Hollingsworth Solderless Terminal Co. v. Turley, 622 F.2d 1324, 1329-34 (9th Cir.1980), nothing in the statute or Muggill suggests that the presence of unfair competition is required before § 16600 can be invoked.

*663 If doubt ever existed that restraint of competition and “absolute” forfeiture of all rights are not requisite elements under § 16600, such doubts should have been laid to rest by Ware. In Ware, in the course of holding that under Cal.Lab. Code § 229, an employee could not be compelled to arbitrate a pension benefit claim, the California Court of Appeal held that, “pension plan benefits are wages within the meaning of the statute. In its legal sense, the word ‘wages’ has been given a broad, general definition so as to include compensation for services rendered without regard to the manner in which such compensation is computed.” 24 Cal.App.3d at 44, 100 Cal.Rptr. 791 (citations omitted). The majority suggests no reason why restraint of competition should be required in a claim essentially to recover wrongfully withheld wages. In affirming Ware, the Supreme Court stated:

“In the area of regulation that we are considering here, California has manifested a strong public policy of protecting its wage earners from what it regards as undesirable economic pressures affecting the employment relationship.”

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware, 414 U.S. 117, 139-40 , 94 S.Ct. 383, 395-96 , 38 L.Ed.2d 348 (1973).

I agree with this Court’s prior interpretation of California law regarding the narrow limits of permissible restraint of an ex-employee’s conduct:

“We think the applicable California law is that ‘the employer will be able to restrain by contract only that conduct of the former employee that would have been subject to judicial restraint under the law of unfair competition, absent the contract.’ ”

Hollingsworth, supra, 622 F.2d at 1338 (emphasis added).

In summary, as I read the California eases, they do not impose the requirement of restraint of competition or absolute forfeiture of all rights for a claim under § 16600; further, the imposition of these requirements is inconsistent with California law. Therefore, the granting of appellees’ motion to dismiss because of the absence of these elements was error.

Because of its conclusion that the Plan’s suspension clause did not violate § 16600, the majority does not address the question of the applicable law during the period from the time ERISA’s preemption provision, 29 U.S.C. § 1144 , became effective and the date on which § 203(a) of ERISA, 29 U.S.C. § 1053 (a), became applicable to the Plan. Those dates are, respectively, January 1,1975, and April 1, 1976. See Maj. op. at 660 n. 14.

Although this Court has previously rejected “the contention that ERISA’s broad policy statements have independent legal force in this setting,” Moore v. Home Ins. Co., 601 F.2d 1072, 1074 (9th Cir.1979) (emphasis added), it has not squarely addressed the circumstances present here where, because of the hiatus created by ERISA’s staggered effective dates, the law applicable to that hiatus period must be determined. I do not read Moore as foreclosing our consideration of this issue. 2

I do not interpret Congress’ intent in enacting the various provisions of ERISA as intending to leave a hiatus period ungoverned by any law; rather, this Court may apply federal common law to that period. See In re C.D. Moyer Co. Trust Fund, 441 F.Supp. 1128, 1131 (E.D.Pa.1977), aff’d, 582 F.2d 1273 (3d Cir.1978) (ERISA empowers federal courts to develop “a body of law” governing private pension plans). This federal common law is to be ascertained from the policies of ERISA and “the inherited body of common law principles — many of them deriving from earlier legislative exertions,” including state law. Wayne Chemical, Inc. v. Columbus Agency Service Corp., 426 F.Supp. 316, 322 (N.D.Ind.1977), aff’d as *664 modified, 567 F.2d 692 (7th Cir.1977), citing Moragne v. States Marine Lines, 398 U.S. 375, 392 , 90 S.Ct. 1772, 1783 , 26 L.Ed.2d 339 (1970); see also, Woodfork v. Marine Cooks & Stewards Union, 642 F.2d 966, 972-73 (5th Cir.1981). In this case, the purpose of both ERISA, § 203(a)(3)(B), and state law, § 16600, are essentially the same: each prohibits restrictions which tend to restrain the movement of employees between jobs. Since the state provision is broader, however, the narrower ERISA provision should govern. In these circumstances, where an applicable state law provision, such as § 16600, is preempted by ERISA, I would hold that the delayed, preempting provision of ERISA, here § 203(a), should be applied during the hiatus period as federal common law. I would, therefore, instruct the district court to apply § 203(a) as the federal common law which governs appellant’s claim during the hiatus period from January 1, 1975 to April 1, 1976.

As the majority indicates, the district court granted appellees’ motion to dismiss for failure to state a claim and apparently did not reach either of the cross-motions for summary judgment. Because of that disposition below, it is unnecessary for us to reach appellant’s contention that the district court erred in refusing to consider a late-filed affidavit in support of his motion. While the affidavit was concededly late, I note that appellant had been acting pro se and had retained counsel only shortly before the dispositive hearing. In these circumstances, I would not reach the issue.

I would reverse the judgment of the district court in all respects and remand the case for trial.

. It is true that in two of the cases relied upon by the majority, Ware v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 24 Cal.App.3d 35 , 100 Cal.Rptr. 791 (1972), aff'd, 414 U.S. 117 , 94 S.Ct. 383 , 38 L.Ed.2d 348 (1973), and Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 20 Cal.App.3d 668, 97 Cal.Rptr. 811 (1971), there are passing references to restraint of competition. However, these references are only to the respective plaintiffs’ characterization of their claims and neither opinion adopts restraint of competition as an element of a § 16600 violation. Ware, supra, 24 Cal.App.3d at 42 , 100 Cal.Rptr. 791 ; Frame, supra, 20 Cal.App.3d at 670 & 672, 97 Cal.Rptr. 811 .

. Although Moore declined to follow Amory v. Boyden Associates, Inc., 434 F.Supp. 671 (S.D. N.Y.1976), Moore did not involve the situation involved here of a remedial provision of state law being preempted. Moore involved an attempt to have ERISA’s vesting provision applied prior to its declared effective date, even though no parallel protective provision of state law had been preempted.