Amicus Curiae Brief — Ingersoll-Rand Co. v. McClendon

Iu the Supreme Court of the United States

OCTOBER TERM, 1989

INGERSOLL-RAND COMPANY, PETITIONER

, Ve

PERRY MCCLENDON

ON WRIT OF CERTIORARI TO THE

SUPREME COURT OF TEXAS

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING PETITIONER

KENNETH W. STARR

Solicitor General

DAviD L. SHAPIRO

Deputy Solicitor General

CHKISTOPHER J. WRIGHT

Assistant to the Solicitor General

Department of Justice

Washington, D.C. 20530

(202) 514-2217

ROBERT P. Davis

Solicitor of Labor

ALLEN H. FELDMAN

Agsociate Solicitor

NATHANIEL I. SPILLER

Senior Appellate Attorney

Department of Labor

Washington, D.C. 20210

26

QUESTION PRESENTED

Whether the Employee Retirement Income Secu-

rity Act of 1974 (ERISA) preempts a state common

law claim that an employer unlawfully discharged

an employee in order to interfere with his attain-

ment of benefits under a plan covered by ERISA.

(1)

TABLE OF CONTENTS

Page

NE 1

Statutory provisions involved .....................2...cccccsseeeececeeeeee 2

ce snncecscceccncccecestnecs 4

Neen TT er encecnracccccceccesecs 7

Argument:

ERISA preempts state law claims alleging that an

employer discharged an employee in order to inter-

fere with the attainment of employee benefits _....... 9

A. A state law claim that an employee was dis-

charged so that retirement benefits would not

vest is preempted because it “relate[s] to” an

employee benefit plan within the meaning of

Nee ccssnstibniueecesccecs 12

B. A state law claim analogous to a claim to en-

force Section 510 is preempted because the

remedial provisions in Section 502(a) are

a ceusencesscveaevousors 16

ES 21

TABLE OF AUTHORITIES

Cases:

Alessi vy. Raybestos-Manhattan, Inc., 451 U.S. 504

a cucensensocnenepenecece 11

Authier Vv. Ginsberg, 757 F.2d 796 (6th Cir.),

cert. denied, 474 U.S. 888 (1985) ....................... 11-12

Bittner v. Sadoff & Rudoy Industries, 490 F.

Supp. 534 (E.D. Wis. 1980) .................................. 18

Central States Pension Fund v. Central Transport,

an a ee Cheee) .................................... 9

Conaway V. Eastern Associated Coal Corp., 358

maneee ae cw. Ve. 1006) .................................... 12

Coontz Vv. Gordon Jewelry Corp., 439 N.W.2d 223

(Iowa Ct. App. 1989) ...... (AS 13

Dependahl vy. Falstati Rrewing Corp., 653 F.2d

1208 (8th Cir.), cert. denied, 454 U.S. 968 and

1084 (1981) ......... aemaees ae 12

IV

Cases—Continued: Page

English v. General Electric Co., No. 89-152 (June —

ED | |) nN 15

Fitzgerald v. Codex Corp., 882 F.2d 586 (1st Cir.

1989) . = * ne aie oe

Folz V. Marriott Corn, 54 F. ‘Supp. "1007 (WD

Mo. 1984) . ecttes -cipsaaslas tteaediiimaaaimaaa cd a

Fort Halifax Packing Co. y. Coyne, 482 U.S. 1

DIED cteidiinnuoecs 2 ..8, 14, 15

Hovey V. Lutheran Medical ‘Center, 516 F. ‘Supp.

Fa, Rk & ee, ) eee a 12

K Mart Corp. Vv. Ponsock, 732 P.2d 1364 (Nev.

DIED D secaitcinvvin-taicsnctecocsscumnesonsenncennanssnatameonnesimemmmmmasania 11

Massachusetts Mutual Life Insurance Co. Vv. Rus-

me Beh Sy | eR 10, 16, 18

Metropolitan Life Insurance Co. vy. Massachusetts,

GAG: TEE. FR Cee esctstctcanenctnccseseadomseniabibatieen 11

Metropolitan Life Insurance Co. V. Taylor, 481 U.S.

DCN ED cccscnccevesuctscasnsesesmacsemscinaliandaaeenieniaiad 16

Nachman Corp. v. PBGC, 446 U.S. 359 (1980)... 9,10

Pane v. RCA Corp., 868 F.2d 631 (3d Cir. 1989). 7,11

Pilot Life Insurance Co. vy. Dedeaux, 481 U.S. -

GC RUT D scnckscccicupaeniteneemecbenisonnaanena 6, 8, 11, 16, ng 19, 20

Pizlo v. Bethlehem Steel Corp., 884 F.2d 116 (4th

Cor. 3968) ....... aisiaaiosisuesetamentabeattianeinisaaidebmaiaiiadmas 13

Savodnik v. Korvettes, Inc., 488 F. Supp. 822

Ci eies To TE) cavnnevesnvetevanenevmameneiiaiaiinmiammannaiiaaion 11

Schlenz v. United Airlines, Inc., 678 F. Supp. 230

98 By Ge Ue ee 13

Scott v. Gulf Oil Corp., 754 F.2d 1499 (9th Cir.

BP IPIIIE : wicissocUhicsisdaniandataseimemmnantaasiainsanansiaehiiaaseadaremamatas danas 19

Shaw Vv. Delta Air Lines, Inc., 463 U.S. 85 (1983) .. 13, 15,

16

Sorosky Vv. Burroughs Corp., 826 F.2d 794 (9th

+ TE. RE eaten RPE OS LRRD. hy SIT aN 7,11

Totton Vv. New York Life Inowrence Co., 685 F.

Rs rn on 13

Vogel v. Independence Federal Savings Bank, 692

aU A | ee 18

Statutes and regulation: Page

Employee Retirement Income Security Act of

1974, 29 U.S.C. 1001 et seq.:

7, (ee Rf | Reon eee 9

a ee eee IED elatiiciceeietittiennicecntaictntecnse 9

§§ 201-211, 29 U.S.C. 1051-1061 2... 10

§§301-308, 29 U.S.C. 1081-1086 ........0.......... 10

§§ 401-414, 29 U.S.C. 1101-1114 _o 10

ie ee is ee issih hsnshiecicntliceitnidethaaiinaadbaanilianlaatt 1, 2,9

§ 502(a), 29 U.S.C. 1182 (a) .................. 2, 8, 15, 16, 17,

19, 20, 21

§ 502 (a) (3), 29 U.S.C. 1132 (a) (3) .......2, 6, 9, 10, 16,

17, 18, 19

BORGO), Be Us DEB rcscecicccceccctscaserveees 2, 6, 8, 20

E53 1 Lib foe |: -. | | ne 2

Os neh passim

§ 514, 29 U.S.C. 1144 ....... PLT A eR Tne em eo 2

§ 514(a), 29 U.S.C. 1144 (a) ............. 2, 3, 6, 7, 8, 11, 12

§ 514(b) (2) (A), 29 U.S.C. 1144 (b) (2) (A)... 20

SS BEG CR) 5 Be Ue BEGG GED vecisceccdenscenecncnsecincons 11

§§ 4001-4402, 29 U.S.C. 1301-1461 ..................... 10

Labor-Management Relations Act of 1947, § 301,

Oe TN ee 8,19

Ee ae mea 4

Miscellaneous:

119 Cong. Rec. 30,874 (1978) .....................<-........... 7,10,14

120 Cong. Rec. (1974):

a 11, 15

ALAS Necro eT ae aN ATE PT oe 15

H.R. 2, 93d Cong., 1st Sess. (1973) ...........0.220000.. 16

H.R. Rep. No. 533, 93d Cong., Ist Sess. (1973) ..... 10,14

H.R. Conf. Rep. No. 1280, 93d Cong., 2d Sess.

PIpEPIE TEI. cteonsiteaadiesteianishstekaiebantesimeaabesedanchabandasaaiaseeniidetonabedee 19

S. Rep. No. 127, 93d Cong., Ist Sess. (1973)

Iu the Supreme Court of the United States

OCTOBER TERM, 1989

No. 89-1298

INGERSOLL-RAND COMPANY, PETITIONER

U.

PERRY MCCLENDON

ON WRIT OF CERTIORARI TO THE

SUPREME COURT OF TEXAS

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING PETITIONER

INTEREST OF THE UNITED STATES

Respondent brought a state common law action

claiming, inter alia, that petitioner, his former em-

ployer, discharged him in order to prevent his pen-

sion benefits from vesting. The question presented

is whether that claim is preempted by the Employee

Retirement Income Security Act of 1974 (ERISA).

This case therefore involves the application of three

provisions of that statute: (1) Section 510, 29

U.S.C. 1140, which prohibits employers from inter-

fering with the attainment of benefits promised un-

der plans governed by ERISA; (2) Section 502, 29

U.S.C. 1132. which confers exclusive jurisdiction on

(1)

2

federal district courts to award appropriate relief to

prevent and redress violations of Section 510; and

(3) Section 514(a), 29 U.S.C. 1144(a), which pre-

empts state laws relating to employee benefit plans.

The Texas Supreme Court held that the public

policy embodied in Section 510 may form the basis

of a state wrongful discharge action. Pet. App. 5a.

The Secretary of Labor enforces the reporting, dis-

closure, and fiduciary obligations that ERISA im-

poses on private employee benefit plans. More spe-

cifically, Section 502(h), 29 U.S.C. 1132(h), pro-

vides that parties bringing suit to euforce their

rights under Section 510 must notify the Secretary

of the action, and further provides that she has the

right to intervene in any such action. The Secretary

therefore has a strong interest in the proper inter-

pretation of Section 510 and of ERISA’s preemption

and enforcement provisions.

STATUTORY PROVISIONS INVOLVED

Section 502 of ERISA, 29 U.S.C. 1132, provides

in pertinent part:

(a) Persons empowered to bring a civil action

A civil action may be brought—

x - ~ ~

(3) by a participant, beneficiary, or fiduciary

(A) to enjoin any act or practice which violates

any provision of this subchapter or the terms of

the plan, or (B) to obtain other appropriate

equitable relief (i) to redress such violations or

(ii) to enforce any provisions of this subchapter

or the terms of the pian;

* * * *

\ 3

(e) Jurisdiction

(1) Except for actions under subsection (a)

(1)(B) of this section, the district courts of the

United States shall have exclusive jurisdiction

of civil actions under this subchapter brought

by the Secretary or by a participant, beneficiary,

or fiduciary. State courts of competent juris-

diction and district courts of the United States

shall have concurrent jurisdiction of actions un-

der subsection (a)(1)(B) of this section.

* * * aA

Section 510 of ERISA, 29 U.S.C. 1140, provides:

It shall be unlawful for any person to dis-

charge, fine, suspend, expel, discipline, or dis-

criminate against a participant or beneficiary

for exercising any right to which he is entitled

under the provisions of an employee benefit

plan, this subchapter, section 1201 of this title,

or the Welfare and Pension Plans Disclosure

Act [29 U.S.C.A. 301 et seq.], or for the pur-

pose of interfering with the attainment of any

right to which such participant may become en-

titled under the plan, this subchapter, or the

Welfare and Pension Pians Disclosure Act. It

shall be unlawful for any person to discharge,

fine, suspend, expel, or discriminate against any

person because he has given information or has

testified or is about to testify in any inquiry or

proceeding relating to this chapter or the Wel-

fare and Pension Plans Disciosure Act. The pro-

visions of section 1132 of this title shall be ap-

plicable in the enforcement of this section.

Section 514 of ERISA, 29 U.S.C. 1144, provides in

pertinent part: ~

(a) Supersedure: effective date

Except as provided in subsection (b) of this

section, the provisions of this subchapter and

4

subchapter III of this chapter shall supersede any

and all State laws insofar as they may now or

hereafter relate to any employee benefit plan

described in section 1003(a) of this title and

not exempt under section 1003(b) of this title.

This section shall take effect on January 1, 1975.

STATEMENT

Petitioner Ingersoll-Rand Company employed re-

spondent Perry McClendon as a salesman and dis-

tributor of construction equipment. After nine years

and eicht months of service, McClendon was fired by

the company, which cited general economic factors as

the reason for the discharge. Pet. App. la-2a, 18a.

McClendon sued the company in state court. He

first alleged that the discharge had deprived him of a

sizable commission on a sale of equipment for which

he had laid the groundwork. He also asserted that

his pension would have vested in another four

months and that a principal reason for the discharge

was the company’s desire to avoid making contribu-

tions to his pension fund. Ingersoll-Rand countered

that allegation by presenting an affidavit stating that

McClendon’s pension benefits had, in fact, vested un-

der the terms of the plan. Pet. App. 13a. McClendon

apparently failed to understand that, pursuant to the

break-in-service regulation, 29 C.F.R. 2530.200b-4,

he had heen credited with sufficient service to vest

under the plan’s ten-year requirement. However,

McClendon continued to allege that the company had

acted in bad faith when it discharged him, and did

so in part in order to avoid making pension pay-

ments. Pet. App. 2a n.2. Based on these allegations,

he alleved state common law causes of action sound-

ing in tort and contract. McClendon sought both

5

compensatory damages (recovery for lost future

wages and mental anguish) and punitive damages.

The state district court granted the company’s mo-

tion for summary judgment (Pet. App. 25a-26a),

and the state court of appeals affirmed (id. at 17a-

24a). The court of appeals ruled that MecClendon’s

employment was “at will’? because the agreement

governing his commissions, upon whicia McClendon

had relied, expressly contemplated the possibility of

termination at any time and there was no other in-

ication of a good cause limitation on the company’s

right to terminate. /d. at 20a, 22a. The court fur-

ther refused to recognize an implied covenant of good

faith and fair dealing applicable to the employment

relationship. /d. at 22a-24a. The court also upheld

summary judgment against respondent’s claim of in-

tentional infliction of emotional distress, holding that

the discharge was neither extreme nor outrageous.

Id. at 24a.

A divided Texas Supreme Court reversed and re-

manded for trial. Pet. App. la-16a. The court ap-

plied “the principle that public policy can limit an

employer’s power to discharge at-will employees,”

and found that “the state has an interest in protect-

ing employees’ interests in pension plans.” Jd. at 4a,

5a. In reaching that conclusion, the court cited a

state statute relating to the pension plans of public

employees and relied on Section 510 of ERISA. The

court noted that Section 510 “makes it unlawful for

any person to discharge, fine, suspend or discrim-

inate against any employee for the purpose of inter-

fering with that employee’s potential rights under

a pension plan.” Pet. App. 5a. The court added that

“!t]he very passage of ERISA demonstrates the

great significance attached to income security for

6

retirement purposes.” Jbid. It therefore held that a

plaintiff may bring a wrongful discharge action un-

der Texas law alleging that “the principal reason for

[the] termination was the employer’s desire to avoid

contributing to or paying benefits under the em-

ployee’s pension fund.” /bid. Cases in which federal

courts had found that ERISA preempts wrongful

discharge claims were distinguished on the ground

that McClendon “is not seeking lost pension benefits

but is instead seeking future wages, mental anguish

and punitive damages as a result of the wrongful

discharge.” /d. at 5a n.3.'

Four justices dissented. They all agreed that

ERISA preempts the state cause of action that the

court had recognized. Pet. App. 5a-9a, 13a. Justice

Cook, joined by two other jus-ices, explained that

claims for violation of Section 510 of ERISA are en-

forceabic under Section 502(a)(3), and that Section

502(e) confines litigation of such claims to federal

courts. Pet. App. 7a. While it is “possible for state

and federal law to address the same problem,” Jus-

tice Cook continued, ERISA expressly provides in

Section 514(a) that the federal statute preempts all

state laws that “relate to” empleyee benefit plans.

Pet. App. 7a. Moreover, he added, this Court had

held in Pilot Life Insurance Co. v. Dedeaux, 481

U.S. 41 (1987), that ERISA’s enforcement provision

has a broad preemptive effect. Pet. App. 7a. Justice

Cook concluded that ERISA provides employees such

as McClendon “with a real and enforceable claim that

they may bring in federal court and at the same time

supersedes the claim manufactured today.” /d. at

Sa-9a.

1 Because of its reliance on Section 510, the court did not

reach McClendon’s claim that the company had breached a

duty of good faith and fair dealing. Pet. App. 2a n.1.

7

SUMMARY OF ARGUMENT

As all of the federal courts of appeals to consider

the matter have agreed, state wrongful discharge

actions grounded on allegations that the employer

sought to interfere with the attainment of rights

under an employee benefit plan are preempted by

ERISA. Fitzgerald vy. Codex Corp., 882 F.2d 586,

588 (1st Cir. 1989); Pane v. RCA Coip., 868 F.2d

631, 639 (38d Cir. 1989); Sorosky v. Burroughs

Corp., 826 F.2d 794, 799-800 (9th Cir. 1987). This

is so for two clcsely related reasons.

A. A claim alleging izterference with the attain-

ment of benefits “relate[s] to” an employee benefit

plan within the meaning of ERISA’s broad preemp-

tion provision, Section 514(a). This case illustrates

how such claims “relate to” employee benefit plans,

since the meaning of the terms of Ingersoll-Rand’s

plan are central to McClendon’s claim and to the

company’s defense. If the case is tried, McClendon

will contend that he was discharged in part because

the persons responsible for that decision thought his

pension was about to vest, while the company will

stress that, under the terms of the plan, the pension

had vested.

In addition, Section 510 of ERISA makes clear

that, in Congress’s view, actions alleging interfer-

ence with the attainment of benefits “relate to” em-

ployee benefit plans. Indeed, the protections set out

in Section 510—the provision prohibiting interfer-

ence with the attainment of benefits—are plainly

necessary to ensure that ERISA’s other provisions

are not evaded since, for example, “!n]jo vesting

formula will produce real employee protection so long

as employers are free to fire employees to defeat pen-

sion eligibility.” 119 Cong. Ree. 30,374 (1973)

(statement of Sen. Hartke).

8

Furthermore, allowing state law claims analogous

to ERISA actions enforcing Section 510 would inter-

fere with Congress’s purpose in enacting ERISA’s

broad preemption provision. As this Court has rec-

ognized, Congress preempted state law in Section

514(a) so that employee benefit plans would be gov-

erned by a single set of regulations. Fort Halifax

Packing Co. v. Coyne, 482 U.S. 1, 11 (1987). If

state law actions are also permitted, employers will

be required to amend their practices to conform to

the additional requirements the States might impose.

B. A state law claim analogous to a claim under

Section 510 also is preempted because the enforce-

ment provisions in Section 502(a) of ERISA have a

particularly powerful preemptive effect. In enacting

Section 502(a), Congress compared the prevision to

Section 301 of the Labor-Management Relations Act

of 1947, 29 U.S.C. 185, and indicated that the courts

were to develop federal common law to govern em-

ployee benefit plans. As this Court has recognized,

“Congress was well aware [of] the powerful pre-

emptive force of $301. * * * The expectations that

a federal common law of rights and obligations un-

der ERISA-regulated plans would develop, indeed,

the entire comparison of ERISA’s § 502(a) to $301

of the LMRA, would make little sense if the reme-

dies available to ERISA participants and beneficiar-

ies under $502(a) could be supplemented or sup-

planted by varying state laws.” Pilot Life Insurance

Co. v. Dedeaux, 481 U.S. 41, 55-56 (1987). That

conclusion is reinforced by the fact that, under Sec-

tion 502(e) of ERISA, actions to enforce Section 510

may be brought only in federal court.

Allowing supplemental remedies would undermine

the balanced remedial approach that Congress

9

adopted. When it enacted Section 502(a)(3), Con-

gress decided to authorize make-whole relief for the

victim of a violation of Section 510, but it was also

concerned to avoid unduly burdening employers that

choose to adopt employee benefit plans. The relief

available under Section 502 to remedy violations of

Section 510 is in fact ample. See, e.g., Folz v. Mar-

riott Corp., 594 F. Supp. 1007 (W.D. Mo. 1984)

(awarding back pay, front pay, restitution of bene-

fits, and prejudgment interest). As the dissenters on

the Texas Supreme Court stated, persons like Me-

Clendon should be limited to the avenue of relief that

Congress has authorized. Pet. App. 8a-9a.

ARGUMENT

ERISA PREEMPTS STATE LAW CLAIMS ALLEGING

THAT AN EMPLOYER DISCHARGED AN EMPLOYEE

IN ORDER TO INTERFERE WITH THE ATTAIN-

MENT OF EMPLOYEE BENEFITS

Congress enacted ERISA in 1974 after nearly a

decade of studying the operation of private employee

pension and welfare benefit plans. Central States

Pension Fund vy. Central Transport, Inc., 472 U.S.

559, 569 & n.9 (1985); Nachman Corp. v. PBGC,

446 U.S. 359, 361 (1980). Congress found that there

had been enormous growth in employee benefit plans

in recent years and that “the continued well-being

and security of millions of employees and their de-

pendents are directly affected by these plans.” 29

U.S.C. 1001(a). Congress established in ERISA a

comprehensive regulatory framework to “assur|e]

the equitable character of such plans and their finan-

cial soundness” (ibid.), and thereby to “protect

* * * participants in employee benefit plans and

their beneficiaries” (29 U.S.C. 1001(b) ).

10

The ultimate goal of ERISA is to assure that em-

ployees and their beneficiaries actually receive the

benefits they have been promised. See Nachman

Corp., 446 U.S. at 375. To that end, the Act imposes

strict fiduciary duties on all persons who exercise

discretion over the operation of any employee benefit

plan. 29 U.S.C. 1101-1114. With respect to pension

plans, Congress set minimum funding requirements

(29 U.S.C. 1081-1086), established participation and

vesting standards (29 U.S.C. 1051-1061), and

created an insurance program to pay benefits prom-

ised by employers who become insolvent (29 U.S.C.

1301-1461).

Section 510 of ERISA is central to Congress’s

scheme. It provides that employers may not dis-

charge or otherwise discriminate against an em-

ployee who is participating in an employee benefit

plan “for the purpose of interfering with the attain-

ment of any right to which such participant may be-

come entitled under the plan.” Section 510 is a nec-

essary part of ERISA because without it, employers

would be able to avoid the payment of benefits that

they had promised to provide. S. Rep. No. 127, 93d

Cong., Ist Sess. 35 (1973); H.R. Rep. No. 533, 93d

Cong., lst Sess. 17 (1973); 119 Cong. Ree. 30,374

(1973) (statement of Sen. Hartke). For example, in

order to avoid its obligations, an unscrupulous em-

ployer might discharge an employee shortly before

the right to retirement benefits was to vest or, where

participation in a health plan required continued em-

ployment, might discharge an employee who had been

diagnosed as suffering from a serious illness. Section

510 is enforced under Section 502(a) (3), one of the

“six eorefully integrated civil enforcement provisions

found in § 502(a).” Massachusetts Mutual Life In-

surance Co. vy. Russell, 473 U.S. 134, 146 (1985).

11

The “crowning achievement” of the statute was its

“reservation to Federal authority [of] the sole power

to regulate the field of employee benefit plans.” 120

Cong. Rec. 29,197 (1974) (statement of Rep. Dent).

In Section 514(a), Congress expressly preempted

“any and all State laws insofar as they may now or

hereafter relate to any employee benefit plan.” Con-

gress broadly defined “State law’ to include “all

laws, decisions, rules, regulations, or other State ac-

tion having the effect of law.” Section 514(¢c). And,

as this Court has repeatedly instructed, Section 514 (a)

is “deliberately expansive, and designed to ‘estab-

lish pension plan regulation as exclusively a fed-

eral concern.’” Pilot Life Insurance Co. vy. Dedeaux,

481 U.S. at 46 (quoting Alessi vy. Raybestos-

Manhattan, Inc., 451 U.S. 504, 523 (1981)). “The

pre-emption provision was intended to displace all

state laws that fall within its sphere, even including

state laws that are consistent with ERISA’s sub-

stantive requirements.” Metropolitan Life Insurance

Co. v. Massachusetts, 471 U.S. 724, 739 (1985).

Not surprisingly, in light of these provisions, the

federal courts of appeals that have addressed the is-

sue have all found that ERISA preempts state

wrongful discharge actions premised on employer in-

terference with the attainment of rights under em-

ployee benefit plans. Fitzgerald vy. Codex Corp., 882

F.2d 586, 588 (1st Cir. 1989); Pane v. RCA Corp.,

868 F.2d 631, 639 (3d Cir. 1989); Sorosky vy. Bur-

roughs Corp., 826 F.2d 794, 799-800 (9th Cir.

1987).° See also Authier v. Ginsberg, 757 F.2d 796

*In addition to the court below, one state court and two

federal district courts have held to the contrary. See K Mart

Corp. V. Ponsock, 732 P.2d 1364, 13865 (Nev. 1987) ; Savodnik

Vv. Korvettes, Inc., 488 F. Supp. 822, 826 (E.D.N.Y. 1980) ;

12

(6th Cir.), cert. denied, 474 U.S. 888 (1985) (pre-

emption of action by fiduciary for unlawful termina-

tion); Dependahl y. Falstaff Brewing Corp., 653

F.2d 1208, 1215-1216 (Sth Cir.), cert. denied, 454

U.S. 968 and 1084 (1981) (preemption of state law

tort claims based on alleged interference with bene-

fit rights). Accord Conaway vy. Eastern Associated

Coa! Corp., 358 S.E.2d 423, 427 (W. Va. 1986).

A. A State Law Claim That An Employee Was Discharged

So That Retirement Benefits Would Not Vest Is Pre-

empted Because It “Relate[s] To” An Employee Bene-

fit Plan Within The Meaning Of Section 514(a)

McClendon’s claim that Ingersoll-Rand discharged

him so that his pension would not vest states a cause

of action under Section 510. Indeed, it is a classic

example of the sort of claim that Congress intended

to be brought under that provision. It is therefore

clear that his allegation “relate[s] to” an employee

benefit plan and is preempted under Section 514(a).

The heart of MeClendon’s claim is that Ingersoll-

Rand terminated him because it thought that if he

worked for the company for another four months,

his retirement benefits would vest. Accordingly, the

terms of the plan would play a key role in any trial

of his state law claim. In the normal case, a plain-

tiff like McClendon would attempt to show that the

nlan called for an expenditure that the company

avoided by discharging him. In this case, which is

smewhat unusual since it is undisputed that Me-

Clendon’s pension had in fact vested, the company

would undoubtedly argue that there is no merit to

McClendon’s claim because, under the terms of the

Hovey Vv. Lutheran Medical Center, 516 F. Supp. 554, 557-558

(E.D.N.Y. 1981).

13

plan, McClendon’s benefits had vested prior to his

discharge. McClendon, in turn, would most likely

respond that the persons responsible for his dis-

charge misunderstood the terms of the plan and dis-

charged him because they thought his benefits were

about to vest. In any event, the meaning of the terms

of the plan would lie at the core of this case, as in

any similar case, so that a state law action would

have “a connection with or reference to” the plan.

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97 (1983).

In Shaw, the Court noted that “[s]ome state ac-

tions may affect employee benefit plans in too ten-

uous, remote, or peripheral a manner to warrant a

finding that the law ‘relates to’ the plan.” 463 U.S.

at 100 n.21. We would agree that a state wrongful

discharge claim is not preempted under that stand-

ard if the plan is relevant only to the computation of

damages. Thus, for example, if McClendon had pre-

vailed on his state law claim that he was discharged

in violation of the terms of his compensation agree-

ment with Ingersoll-Rand, then it would have been

appropriate for the court, as part of its remedy, to

order his reinstatement in the pension plan or to

award damages equivalent to the value of his pen-

sion benefits under the plan, and such an order would

not be preempted. Pizlo v. Bethlehem Steel Corp.,

884 F.2d 116, 120-121 (4th Cir. 1989); Totton vy.

New York Life Insurance Co., 685 F. Supp. 27, 31

(D. Conn. 1987); Schlenz vy. United Airlines, Inc.,

678 F. Supp. 230, 234-236 (N.D. Cal. 1988); Coontz

v. Gordon Jewelry Corp., 439 N.W.2d 223, 226

(lowa Ct. App. 1989). But more than the terms of

a remedial order are at issue here. The essence of

petitioner’s claim that he was unlawfully discharged —

14

necessarily involves the meaning of the terms of the

plan.

The need for preemption is underscored by the

existence of Section 510. Because it determined that

Section 510 was essential to the accomplishment of

its objective of ensuring the receipt of promised bene-

fits, Congress included that provision in ERISA’s

“administration and enforcement” section. The pro-

vision was motivated by “evidence that in some plans

a worker’s pension rights or the expectations of those

rights were interfered with.” S. Rep. No. 127, 93d

Cong., 1st Sess. 36 (1973). Congress therefore

added Section 510 “to completely secure the rights

and expectations brought into being” by ERISA.

H.R. Rep. No. 533, 93d Cong., Ist Sess. 17 (1975).

As Senator Hartke stated, “[n]o vesting formula

will produce real employee protection so long as em-

ployers are free to fire employees to defeat pension

eligibility.” 119 Cong. Ree. 30,374 (1973). At the

least, Congress thought that the right it was creat-

ing in Section 510 “‘relate[d] to’? employee benefit

plans.

A state law claim such as the one recognized by

the Supreme Court of Texas is duplicative of the

cause of action available under Section 510, and the

availability of a duplicative state cause of action in-

evitably conflicts with the federal scheme. As this

Court recently noted in Fort Halifax Packing Co. v.

Coyne, 482 U.S. 1, 11 (1987), one effect of ERISA’s

broad preemption of state law is that it “afford|s]

employers the advantages of a uniform set of admin-

istrative procedures governed by a single set of reg-

ulations.” Congress recognized that ‘employers es-

tablishing and maintaining employee benefit plans

are faced with the task of coordinating complex ad-

15

ministrative activities,’ and that if “[f]aced with

the difficulty or impossibility of structuring admin-

istrative practices according to a set of uniform

guidelines, an employer may decide to reduce bene-

fits or simply not to pay them at all.” /d. at 11, 13;

see also Shaw, 463 U.S. at 105 n.25. ERISA’s broad

preemption provision encourages the formation of

private employee benefit plans “by eliminating the

threat of conflicting and inconsistent State and local

regulation.” 120 Cong. Rec. 29,197 (1974) (remarks

of Rep. Dent); see also id. at 29,933 (remarks of

Sen. Williams).

It is not hard to see how state laws paralleling

Section 510 could cause the problems Congress

sought to avoid. For example, one State might adopt

a presumption of discrimination against any em-

ployee who was discharged within a year before the

vesting of his pension benefits, while another State

might adopt a different period, er might decide that

the presumption depended on the amount of the

benefits that would vest. In that event, if state rules

were not preempted, an employer faced with differ-

ing requirements would have to decide whether it

nevertheless wished to adopt a benefit plan and, if it

did, would have to adjust its employment practices

in the various States in which it operated. But when

Congress created certain rights and remedies relat-

ing to benefit plans in Sections 510 and 502(a) and

provided for preemption of all state laws also relat-

ing to those plans, it clearly barred the application

of laws that would make the operation of employee

benefit plans more onerous. See English v. General

Electric Co., No. 89-152 (June 4, 1990), slip op. 6

& n.d.

Furthermore, it should be noted that “[t]he bill

that became ERISA originally contained a limited

16

pre-emption clause, applicable only to state laws re-

lating to the specific subjects covered by ERISA.”

Shaw, 463 U.S. at 98; see H.R. 2, 93d Cong., 1st Sess.

$699(a) (1973) (preempting state laws relating

“to the subject matters regulated by this Act”). The

Conference Committee broadened ERISA’s preemp-

tive scope. In doing so, it certainly did not intend

to allow state causes of action analogous to those it

authorized in Section 510. To the contrary, as the

First Circuit stated in another case where the focus

of the plaintiff's claim was interference with the at-

tainment of benefits: “This is precisely the type of

action that section 510 sought to cover and that is

essential to the Act’s protection. Thus, this action is

‘necessarily federal in character by virtue of the

clearly manifested intent of Congress.’” Fitzgerald

\. Codex Corp., 882 F.2d at 588, quoting Metropolitan

Life Insurance Co. v. Taylor, 481 U.S. 58, 67 (1987).

B. A State Law Claim Analogous To A Claim To Enforce

Section 510 Is Preempted Because The Remedial Provi-

sions In Section 502(a) Are Exclusive

The fact that Section 510 is enforceable under Sec-

tion 502(a)(3) provides a related, yet distinct, rea-

son why preemption is mandated in this case. “ ‘The

six carefully integrated civil enforcement provi-

sions’”’ contained in Section 502(a) “set forth a

comprehensive civil enforcement scheme that repre-

sents a careful balancing of the need for prompt

and fair claims settlement procedures against the

public interest in encouraging the formation of em-

ployee benefit plans.” Pilot Life, 481 U.S. at 54,

quoting Massachusetts Mutual Life Insurance Co. vy.

Russell, 473 U.S. at 146. Even in the absence of

ERISA’s express preemption provision, it would be

17

clear that actions such as McClendon’s are pre-

empted.

Section 502(a)(3) provides that any plan par-

ticipant or beneficiary may bring a civil action to

prevent or redress a violation of “any provision of

this subchapter” (which includes Section 510) or of

“the terms of the plan.” Under Section 502(e), a

cause of action under Section 502(a)(3) may be

brought only in a federal district court, and Section

502(a)(3) states that injunctive relief is available

in such actions and that a federal court may also

grant “other appropriate equitable relief (i) to re-

dress such violations or (ii) to enforce any provi-

sions of this subchapter or the terms of the plan.”

This Court has recognized that Congress intended the

federal courts to develop “a federal common law of

rights and obligations” under Section 502(a). Pilot

Life, 481 U.S. at 56.

The district courts that have found violations of

Section 510 have properly awarded broad relief. For

example, in Folz v. Marriott Corp., 594 F. Supp.

1007 (W.D. Mo. 1984), the court concluded that the

employer, which operated a self-funded medical bene-

fits plan, had discharged the plaintiff after he con-

tracted multiple sclerosis in order “to avoid the ad-

verse economic impact which that disease could have

under Marriott’s employee benefit plans.” Jd. at

1013. It rejected the employer’s contention that “re-

lief under ERISA should be limited to reinstating

the plaintiff as a benefit plan beneficiary, and that

reinstatement to employment and back pay are not

appropriate remedies.” /d. at 1015. Rather, the

court concluded that Congress intended to authorize

relief that would make a plaintiff whole for the vio-

lation of Section 510. 594 F. Supp. at 1016. It ac-

18

cordingly awarded back pay, front pay, restitution

of forfeited benefits, and prejudgment interest on

the back pay award.

Similarly, in Bittner v. Sadoff d Rudoy Indus-

tries, 490 F. Supp. 534, 5386 (E.D. Wis. 1980), the

court 1..ld that it had “equitable power to put plain-

tiff back imto the position he enjoyed before the dis-

charge,’ and could award ‘“‘back pay, reinstatement

to his former position, restitution of his forfeited

employee benefits, and any other relief necessary to

make him whole.” The court in Vogel v. [ndepend-

ence Federal Savings Bank, 692 F. Supp. 587, 596

(D. Md. 1988), while deciding that punitive dam-

ages may not be awarded in cases involving viola-

tions of Section 510, thought that other forms of

extracontractual damages are available, including

“recovery for mental] distress or for money loss above

and beyond the contractual terms.” Thus, while the

full extent of the relief available under Section 502

(a)(3) is unclear, especially with respect to extra-

contractual damages (see Massachusetts Mutual Life

Insurance Co. v. Russell, 473 U.S. at 139 n.5), it is

clear that generous remedies are available to plain-

tiffs who prove violations of Section 510.

Thus, there is no merit to the Texas Supreme

Court’s suggestion (Pet. App. 5a n.3) that the cause

of action it created does not overlap or conflict with

Congress’s scheme because the state-law claim con-

templated an award of damages from an employer,

not benefits from a plan. The focus of Section 510

is on employers, and a make-whole remedy under

that provision would almost always include an award

of back pay from an employer. The remedy might

also include an award of benefits or reinstatement 1

a benefit plan, but such an award is not required by

19

or essential to the congressional scheme, and (as

here) may not be appropriate in a particular case.’

Because Congress has provided a remedy to en-

force Section 510 and has further instructed the fed-

eral courts to develop a federal common law of rights

and remedies under Section 502(a)(3), the decision

in Pilot Life makes it clear that the federal remedy

is exclusive. Pilot Life ir.volved the question whether

a state law action asserting improper processing of

a benefit claim was preempted. The Court held that

it was, and relied primarily on “the clear expression

of congressional intent that ERISA’s civil enforce-

ment scheme be exclusive.” 481 U.S. at 57. The

Court based its conclusion on the “deliberate care

with which ERISA’s civil enforcement remedies were

drafted and the balancing of policies embodied in its

choice of remedies.” 481 U.S. at 54. The Court also

noted that the Conference Report compared Section

502(a) with Section 301 of the Labor-Management

Relations Act of 1947 and stated that “Congress was

well aware [of] the powerful pre-emptive force of

$301.” 481 U.S. at 55, citing H.R. Conf. Rep. No.

1280, 93d Cong., 2d Sess. 327 (1974). The Court

explained that “[t]he expectations that a federal

’ Similarly, there is no merit to respondent’s contention

(Br. in Opp. 16) that the Texas Supreme Court’s decision is

consistent with cases such as Scott v. Gulf Oil Corp., 754 F.2d

1499 (9th Cir. 1985). In that case, the plaintiffs asserted that

their former employer had schemed with their current em-

ployer to eliminate their right to severance benefits. The

court noted that “‘the heart of the matter” was that the cur-

rent employer had no severance pay plan, so that to preempt

the plaintiffs’ state law claims “would leave them without an

avenue of redress.” Jd. at 1506. In the absence of a cause of

action under Section 502(a), the court allowed the claim to

go forward. In this case, of course, McClendon has a cause

of action under Section 502 (a) (3).

20

common law of rights and obligations under ERISA-

regulated plans would develop, indeed, the entire

comparison of ERISA’s § 502(a) to $301 of the

LMRA, would make little sense if the remedies

available to ERISA participants and_ beneficiaries

under $ 502(a) could be supplemented or supplanted

by varying state laws.” 481 U.S. at 56.

To the extent that the issue presented here differs

from the issue in Pilot Life, the differences make

this an even clearer case. Thus, Pilot Life involved

a claim for benefits, and those claims may be brought

in either state or federal court under Section 502(e).

In cases such as this, however, Section 502(e) pro-

vides that only federal courts have jurisdiction.

Moreover, it was argued in Pilot Life that the state

law claim pertaining to bad faith processing of a

benefit claim was a law regulating insurance, and

therefore was expressly excepted from the preemp-

tion provision by Section 514(b) (2) (A), 29 U.S.C.

1144(b)(2)(A) (the insurance saving clause). No

similar exception applies in this case.

State supplementation of the federal remedy

threatens serious interference with the federal

scheme. Congress has not specified every detail with

respect to the remedies available under Section

502(a); instead it has instructed the federal courts

to develop a federal common law of ERISA remedies

and it has provided guidance to the federal courts

from which they can fashion that common law. Put

most simply, Congress, while enacting ERISA to

ensure that employees would obtain the benefits they

were promised, was also concerned that the require-

ments it imposed not be so burdensome that em-

ployers would be forced to reduce benefits or to elim-

inate them aitogether. The federal courts must con-

21

sider these dual objectives, which are in tension, in

fashioning the remedies available under Section

502(a). The fifty States might not agree with the

federal approach, or with each other. Indeed, the

Texas Supreme Court appeared to be unaware that

by creating a state wrongful discharge action that

would permit an award of punitive damages, it had

added significantly to the potential cost of operating

employee benefit plans. In this respect, as in many

others, allowing the States to add to the remedies

available under ERISA would upset the balance to

be achieved under federal law.

CONCLUSION

The judgment of the Texas Supreme Court should

be reversed.

Respectfully submitted.

KENNETH W. STARR

Solicitor General

DAVID L. SHAPIRO

Deputy Solicitor General

CHRISTOPHER J. WRIGHT

Assistant to the Solicitor General

ROBERT P. DAVIS

Solicitor of Labor

ALLEN H. FELDMAN

Associate Solicitor

NATHANIEL I, SPILLER

Senior Appellate Attorney

Department of Labor

JUNE 1990

YY ov. S. GOVERNMENT PRINTING OFFICE; 1990 262203 945