Amicus Curiae Brief — District of Columbia v. Greater Washington Bd. of Trade

Cy FILED

No. 91-1326 ; JUN 5 1992

IN THE

Supreme Court of the United States

OCTOBER TERM, 1991

THE DISTRICT OF COLUMBIA and

SHARON PRATT KELLY, MAYOR,

Petitioners,

v.

THE GREATER WASHINGTON BOARD OF TRADE

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

BRIEF OF THE AMERICAN FEDERATION OF LABOR

AND CONGRESS OF INDUSTRIAL ORGANIZATIONS

AS AMICUS CURIAE IN SUPPORT OF PETITIONERS

_——— tS

MARSHA S. BERZON

177 Post Street, Suite 300

San Francisco, CA 94108

(415) 421-7151

LAURENCE GOLD

(Counsel of Record)

815 16th Street, N.W.

Washington, D.C. 20006

(202) 637-5390

WILSON - Eras Printinc Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

® Do oo

26

TABLE OF CONTENTS

TABLE OF AUTHORITIES ...0000022.0..0.222.202.:ccccssseseeeeeeeee

INTRODUCTION AND SUMMARY OF ARGU-

ENE

REET Cane ORR Ses te Se a

1. The Necessity for Line Drawing ........................

2. The Relevance of the ERISA §4(b)(3) Ex-

SEE SSS Sa eee

, Ae SER ee

4. Application of ERISA § 514(a) to the Connec-

tion Between the Equity Amendment Act and

Respondent’s Health Benefits Plan .....................

SMNIIUUIIIET idtlintenstdasuiis nsbinidieniieinisccsinummentensencorsansieemnennace

ii

TABLE OF AUTHORITIES

CASES Page

Aetna Life Ins. v. Borges, 869 F.2d 142 (2d Cir.) .. 6

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

} | | | SEES 9,17, 25

Arkansas Blue Cross & Blue Shield v. St. Mary’s

Hospital, 947 F.2d 1341 (1991) ............0.--- 6

Bartholet v. Reishauer A.G., 953 F.2d 1073 (7th

Che. 21GB) nccccccocccecccnscescnncesensenceessnanisssnnnaaaa 7

Cromwell v. Equicor-Equitable HCA Corp., 944

F.2d 1272 (6th Cir. 1991) . ; 7

E-Systems v. Pogue, 929 F.2d. 1100 “(5th ‘Cir.),

cert. denied, U.S. ——, 112 S. Ct. 585

(19GB) acencecvaeencnossesssescesonncssenssssisiiuasiaiiianann 24

Ethridge v. Harbor House Restaurant, 861 F.2d

19808 (Otte Cle. 39GB) ...ccoccccccncescescsscennsmectenmmecaintins 30

Feist Publications v. Rural Television Service Co.,

US. , 111 S. Ct. 1282 (1991)................. 25

Firestone Tire & Rubber Co. v. Neusser, 810 F.2d

ie Sb , | ee 24

FMC Corp. v. Holliday, —— U.S. ——, 111 S. Ct.

GBB (1GBO) ..cccccccccccnsecsccsssecssesecsssennn 18

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

C2GBT) nccocecoccsescencscesesscennssecsasesasennssiase passim

General Motors v. California Board of Equalization,

815 F.2d 1305 (9th Cir. 1987) ..........................--... 24

Gilbert v. Burlington Industries, Inc., 765 F.2d 320

(2d Cir. 1985), aff'd mem., 477 U.S. 901 (1986).. 19

Greater Washington Bd. of Trade v. District of

Columbia, 948 F.2d 1317 (D.C. Cir. 1991) —........ passim

Holland v. Burlington Industries, Inc., 772 F.2d

1140 (4th Cir. 1985), aff'd mem., 477 U.S. 901

(1GBB) cccecececsceccssecerestismnummse 19

Hospice of Metro Denver v. Group Health Ins. of

Oklahoma, 944 F.2d 752 (1991) .............2--22--2-222--0 7

Ingersoll-Rand Co. v. McClendon, US. —,

tee Re ey ee passim

Mackey v. Lanier Collection Agency & Service, Inc.,

406 UB. GBB (IGG) ccccocecsccseenmmenma passim

iii

TABLE OF AUTHORITIES—Continued

Page

Martori Bros. Distributors v. James-Massengale,

781 F.2d 1349, amended, 791 F.2d 799 (9th

ESD 6, 29

Massachusetts v. Morash, 490 U.S. 107 (1989) __. 30

Memorial Hos. System v. Northbrook Health Ins.,

904 F.2d 236 (5th Cir. 1990) 00 6

Metropolitan Life Ins. Co. v. Massachusetts, 471

I cecenses 17

Morales v. Trans World Airlines Inc., No. 90-1604

(U.S. S. Ct. Jume 1, 1902) ................... an

Pilot Life Ins. v. Dedeaux, 481 U.S. 41 (1987). 17

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

Cir, 1989) _.... nnttiitalldiniadireenetsieertenenessensnsnntecsoce 30

Retirement Fund Trust v. Franchise Tax Board,

909 F.2d 1266 (9th Cir. 1990) 0 23

Shaw v. Delta Airlines, 463 U.S. 85 ( 1983) . a passim

Smith v. Dunham-Bush, Inc., 959 F.2d 6 (2d Cir.

ESS 7

Standard Oil Co. of Calif. v. Aosalud, 633 F.2d

760 (9th Cir. 1980), summarily aff'd, 454 U.S.

EE 9

United States v. 12 200-Ft. Reels of Super 8mm.

Film, 413 U.S. 123 (1978)... 0... Llactate 6

STATUTES |

Employee Retirement Income ae Act of 1974,

EEE 2

SS 8

aT 8, 9, 10

EEE passim

I eee passim

EES passim

nn 2

ES —_—— a sisiein 12

EEE SS 25, 26

iv

TABLE OF AUTHORITIES—Continued

LEGISLATIVE HISTORY Page

120 Cong. Rec. 29197 (1974) .....................0....2.eececeeeee 14

120 Cong. Rec. 29983 (1974) .....................--.cc-cecceeeees 14

OE 14

Subcommittee on Labor of the Senate Comm. on

Labor & Public Welfare, 94th Cong., 2d Sess.,

Legislative History of the Employee Retirement

Income Security Act 4789 (1976) ................... 14

IN THE

Supreme Court of the United States

OcToRER TERM, 1991

No. 91-1326

THE DISTRICT OF COLUMBIA and

SHARON PRATT KELLY, MAYOR,

. Petitioners,

THE GREATER WASHINGTON BOARD OF TRADE,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

BRIEF OF THE AMERICAN FEDERATION OF LABOR

AND CONGRESS OF INDUSTRIAL ORGANIZATIONS

AS AMICUS CURIAE IN SUPPORT OF PETITIONERS

This brief amicus curiae of the American Federation

of Labor and Congress of Industrial Organizations

(“AFL-CIO”), a federation of 90 national and interna-

tional unions with a total membership of approximately

14,000,000 working men and women, is filed with the

consent of the parties and in support of petitioners, as

provided for in the Rules of this Court.

INTRODUCTION AND SUMMARY OF ARGUMENT

In Shaw v. Delta Airlines, 463 U.S. 85 (1983), the

Court summarized the portion of the Employee Retire-

ment Security Act of 1974 (“ERISA”) pertinent to de-

termining the interplay between the federal statute and

state law as follows:

The federal Employee Retirement Income Security

Act of 1974, 88 Stat. 829, as amended, 29 U.S.C. § 1001

et seq. (1976 ed. and Supp. V) subjects to federal reg-

ulation plans providing employees with fringe bene-

fits. ERISA is a comprehensive statute designed to

promote the interests of employees and their bene-

ficiaries in employee benefit plans . . . The term

“employee benefit plan” is defined as including both

pension plans and welfare plans. The statute im-

poses participation, funding and vesting requirements

on pension plans. 201-306, 29 U.S.C. §§ 1051-86

(1976 ed. and Supp. V). It also sets various uni-

form standards, including rules concerning report-

ing, disclosure and fiduciary responsibility, for both

pension and welfare plans. 101-111, 401-414, 29

U.S.C. §§ 1101-1114 (1976 ed. and Supp. V). ERISA

does not mandate that employers provide any par-

ticular benefits. .. .

Section 514(a) of ERISA, 29 U.S.C. § 1144/a),

preempts “any and all State laws insofar as they

may now or hereafter relate to any employee benefit

plan” covered by ERISA. . . [Section] 4(b) (3) of

ERISA, 29 U.S.C. §1003(b)(3) exempts from

ERISA coverage employee benefits plans that are

“maintained solely for the purpose of complying with

applicable workmen’s compensation laws or unem-

ployment compensation or disability insurance laws.”

[463 U.S. at 90-91 (footnotes omitted) }.’

The immediate preemption question raised by this case

is whether a statute such as the Equity Amendment Act

—a District of Columbia statute that requires employers

to provide, as part of the benefits payable under the Dis-

trict’s workers compensation statute, health benefits equiv-

alent to those included in the employer’s own health bene-

fit plan—is preempted by ERISA.

The D.C. Circuit viewed that question—properly, in

our view, for reasons delineated in Part 1, infra—as

1 There are also a number of explicit exceptions to the preemptive

force of § 514(a), none of them directly pertinent here. See ERISA

§§ 514(b) and (d), 29 U.S.C. §§ 1144(b) and (d).

turning not upon the proper interpretation of ERISA

§ 4(b) (3)’s “workers compensation” plan exemption, but

upon the proper interpretation of the “relates to” lan-

guage of ERISA §514(a), the affirmative preemption

provision.

The D.C. Cireuit then stated three reasons why, in

its view, the Equity Amendment Act “relate{s] to”

employee health benefit plans within the meaning of

ERISA §514(a) and is therefore preempted: (1) “by

requiring that . . . new benefits be ‘equivalent’ to those

already provided under an existing covered plan”

(Greater Washington Bd. of Trade v. District of Colum-

bia, 948 F.2d 1317, 1322); (2) “by defining the employ-

ers who are obliged to provide . . . new benefits as those

who already provide benefits under a covered plan” (id.) ;

and (3) by reason of “the additional financial burden

associated with an increase in ERISA health benefits, an

employer might choose to forego such an increase alto-

gether” (id. at 1325).

The argument that follows is devoted to demonstrating

that the D.C. Circuit erred in regarding any of these

three intersections between the Equity Amendment Act

and an ERISA-covered health benefit plan as a sufficient

“relationship” to that plan to invoke ERISA § 514(a)

preemption.

1. This Court has both stated that the term “relates

to” in ERISA § 514(a) is a broad one and recognized

that certain state law connections with or references to

ERISA-covered employee benefit plans do not suffice to

constitute the required relationship. Although at earlier

stages of the process of litigating elucidation, the Court

has declined to delineate the precise line separating those

two classes of state laws, it is now time to do so.

2. Before proceeding to discuss the line-drawing issue,

we explain, in Part 1, infra, why the reach of the

$514(a) “relates to” standard is in fact the determi-

4

native issue here. In describing the preemptive scope of

ERISA, § 514(a) refers to the §4(b) coverage exemp-

tions. Section 514(a) includes this cross-reference to con-

form the coverage and preemption provisions of the stat-

ute by assuring that state laws are not preempted because

of their impact upon exempted plans alone. The D.C.

Circuit’s preemption conclusion turned not on the rela-

tionship between the Equity Amendment Act and ERISA-

exempt workers’ compensation plans, but upon the inter-

action between the Equity Amendment Act and nonex-

empt health benefits plans. Thus, as the court below cor-

rectly understood, this case, at bottom, turns on the scope

of ERISA’s preemption provision, standing alone, not on

the relationship between ERISA §§ 514(a) and 4(b).

3. Surveying both the ERISA legislative materials

and this Court’s ERISA preemption case law, it becomes

apparent that Congress meant to preempt the class of

state laws that either are specifically designed to affect

ERISA-covered employee benefit plans particularly or

that, while not so designed, in fact have a substantial

and unavoidable impact upon the operation of such plans.

4. Under that dual standard, the interaction between

the Equity Amendment Act and respondent’s ERISA-

covered health benefit plan does not rise to level of an

ERISA § 514(a) relationship. Indeed, that interaction is

most similar to the connection between ERISA-covered

employee benefit plans and state law damages calculations

where replacement of lost compensation is at issue. In

both instances, the only possible impacts upon the actual

operation of the ERISA-covered plans is that the em-

ployer could possibly be influenced by the economic con-

sequences of the state law to alter the shape of its ERISA

plan. Purely speculative economic effects of that kind are

simply too tenuous to sustain preemption under § 514(a).

5

ARGUMENT

1. The Necessity for Line Drawing:

In Shaw v. Delta Airlines, supra, this Court noted that

“lal law ‘relates to’ aun employee benefit plan, in the nor-

mal sense of the phrase, if it has a connection with or

reference to such a plan” and that “Congress used the

words ‘relate to’ in § 514(a) in [this] broad sense.” 463

U.S. at 96-98. At the same time, Shaw recognizes that

some “state actions . . . affect employee benefit plans in

too tenuous, remote, or peripheral a manner to warrant

a finding that the law ‘relates to’ the plan,” but declined

at that juncture to “express .. . views about where it

would be appropriate to draw the line.” 463 U.S. at 100

n.21. “Relates to,” in sum, is a broad, but not a limitless,

term; not every “connection” and not every “reference”

constitutes a § 514(a) relationship.

Since Shaw, this Court has had seven additional oc-

casions to consider ERISA preemption issues. The opin-

ions in the post-Shaw cases continue to repeat both Shaw's

“connection with or reference to such a plan” language and

the concomitant observation that some “connections with”

or “references to” ERISA employee benefit plans are too

insubstantial to “relate to” a covered plan within the

meaning of § 514(a). See, e.g., most recently, Jngersoll-

Rand Co. v. McClendon, —— U.S. ——, 111 St. Ct. 478,

483 (1990); see also, summarizing and relying upon the

ERISA preemption cases in construing another statute,

Morales v. Trans World Airlines Inc., 8. Ct. No. 90-1694,

slip op. at 14 (June 1, 1992). And the Court has on several

occasions implicitly, and on one occasion explicitly, held

that there was no ERISA preemption despite some con-

nection between a state law and employee benefit plans.

See Fort Halifax Packing Co. v. Coyne, 482 US. 1

(1987), and Mackey v. Lanier Collection Agency & Serv-

ice, Inc., 486 U.S. 825, 829 (1988).

None of these cases, however, marks with precision the

line between connections supporting a preemptive result

6

and those too weak to warrant such a result. Because

the real world of economic transactions creates an

endiess webb of connections, because state law regulates

so many facets of these transactions, and because em-

ployee benefit plans are ubiquitous as a form of com-

pensation in modern places of employment, the result has

been an epidemic of ERISA preemption litigation.’ Given

the inherent tension between the two parts of Shaw’s for-

mulation of the ERISA preemption standard and the lack

of subsequent guidance, the lower courts have tended to

take a mechanistic approach to ERISA preemption that

depends more on plucking boilerplate phrases at random

from this Court’s decisions than on reasoned statutory

analysis.°

Until the limiting principles that place a_ particular

legal rule in the overall structure of the law are enun-

ciated, the rule’s reach tends to expand incrementally

until “the aggregate or end result is one that would never

seriously have been considered in the first instance.”

United States v. 12 200-Ft. Reels of Super 8mm. Film,

413 U.S. 123, 127 (1973). In this instance, application

of Shaw’s “connection with or reference to” catchall for-

mulation without due regard to this Court’s repeated ad-

monition that not all connections and not all references

* An April, 1992 Lexis search for ERISA preemption cases turned

up 400 cases in the federal district and circuit courts and the state

appellate courts in 1991 and 1992 alone.

3 In other instances, federal courts of appeals have made thought-

ful and sensible attempts to develop a principaled approach to the

linedrawing problem by collecting and categorizing decided ERISA

preemption cases on each side of the dim Shaw line. See, e.g.,

Memorial Hos. System v. Northbrook Health Ins., 904 F.2d 236

(5th Cir. 1990); Aetna Life Ins. v. Borges, 869 F.2d 142 (2d Cir.),

cert. denied, U.S. , 110 S. Ct. 57 (1989); Arkansas Blue

Cross & Blue Shield v. St. Mary’s Hospital, 947 F.2d 1341 (1991):

Martori Bros. Distributors v. James-Massengale, 781 F.2d 1349,

amended, 791 F.2d 799 (9th Cir.), cert. denied, 479 F.2d 149 (1986).

7

suffice has yielded results that cannot possibly be justified

if one returns to the cases and considers the legislative

materials afresh. See pp. 13-16, infra.*

For all these reasons, the corpus of ERISA preemption

law has now reached the stage of “gestative propensity

that calls for the ‘line drawing’ familiar in the judicial

... process: “thus far, but not beyond.” 12 200-Ft.

Reels, supra, 413 U.S. at 127. The Court in this case

should therefore begin to delineate the line distinguishing

4 The circumstances of a few of these cases illustrates some of the

anomalous results the lower courts are reaching.

Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272 (6th

Cir. 1991), for example, holds preempted by ERISA suits by medical

care providers against health benefit plans where the provider per-

formed service to a patient in reliance upon erroneous information

from the plan that the employee was covered for the services pro-

vided. Yet, because there is no cause of action under ERISA itself

by which the provider can recover, the result is to displace wel!-

developed common law rules concerning accountability for one’s

actions, to the detriment of a third party who is outside the em-

ployee benefit plan. See 944 F.2d at 1279 (Jones, J., dissenting)

(contending that cenerally lower court ERISA preemption cases

suffer from “an overzealous readiness in the federal courts to bar

all state-law claims which even smell of ERISA .. . without engag-

ing in the complex case-by-case analysis which the statute and

precedent require,” with the result that “such a boiler-plate un-

reflective approach to ERISA preemption . . . frequently leave[s]

deserving claimants without recourse in state or federal court.’’).

Cf. Hospice of Metro Denver v. Group Health Ins. of Oklahoma, 944

F.2d 752 (1991) (same issue, opposite result on the doctrinally

irrelevant basis that no ERISA remedy is available to the health

care provider).

Similarly, several courts have held that where an employer prom-

ises, as part of an individual employment contract, that certain

benefit p.ans will be maintained, the employee has no state cause of

action for breach of the employment contract if the plans are not

in fact maintained, even if the result is to leave the employee with no

remedy at all for the employer’s breach of his explicit promise. See,

e.g., Bartholet v. Reishauer A.G., 953 F.2d 1073 (7th Cir. 1991);

Smith v. Dunham-Bush, Inc., 959 F.2d 6 (2nd Cir. 1992).

8

the circumstances in which a state law may be said to

“relate to” an ERISA employee benefit plan within the

meaning of the statute from those circumstances in which

there is some connection between the state law and bene-

fit plans, but that connection is too insubstantial to war-

rant displacing state authority.

In particular, the Court should make clear (1) that, as

several lower court cases have held, it is not a “rela-

tionship” for ERISA preemption purposes that a state

law takes into account in establishing a non-ERISA re-

quirement the terms of an ERISA employee benefit plan;

and (2) that it is not a “relationship” for ERISA pre-

emption purposes that a state law imposes on employers

a non-ERISA requirement that may have some impact

upon an employee’s economic decisions regarding its

ERISA-covered plans.

2. The Relevance of the ERISA § 4(6)(3) Exception:

Before turning to the ERISA § 514(a) issue that is at

the core of this case, we pause to explain why the D.C.

Circuit was correct in holding that this case turns upon

the reach of §514(a)’s “relates to” language, and not

on the relationship between $$ 514(a) and 4(b).

(a) Workers’ compensaion benefit plans—like the dis-

ability benefit plans involved in Shaw and like unemploy-

ment compensation benefit plans—are “employee welfare

benefits plans” within the meaning of ERISA’s defini-

tional and coverage provisions. See §§$ (3) (1) and (4)a,

29 U.S.C. §$ 1002(1) and 1003(a). Specifically, § 3(1},

29 U.S.C. § 1002(1), defines “employee welfare benefit

plan” as including, inter alia, plans providing sickness,

accident, or disability benefits, of which workers’ com-

pensation benefits are a variety; and § 4/a), 29 U.S.C.

$ 1003(a), describes as covered by ERISA “any” em-

ployee welfare benefit plan established or maintained by

an employer, and employe organization, or both.

9

ERISA §$514(a), in turn, preempts state laws “in-

sofar as they ... relate to any employee benefit plan de-

scribed in section 1003(a) of this title and not exempt

under section 1003(b) of this title.” 29 U.S.C. § 1144(a).

Thus, if that were all there were to the matter, § 514(a)

would preempt state laws mandating workers compensa-

tion plans. See Fort Halifax Packing Co. v. Coyne, su-

pra, 482 U.S. at 12 (noting that Standard Oil Co. of Cal-

ifornia v. Agsalud, 633 F.2d 760 (9th Cir. 1980), sum-

marily aff'd, 454 U.S. 801 (1981) held, correctly, that a

state employee benefit plan is preempted by § 514(a)).

Section 514/a) goes on to say that state laws relating

to employee benefit plans that are “exempt under

§ 1003(b)” are not preempted. Plans “maintained solely

for the purpose of complying with applicable. . . workers’

compensation laws” are exempt from ERISA coverage

under §4(b) (3), 29 U.S.C. § 1003(b)(3). The Piain

language of §514(a), then, provides that there is no

preemption of a state law simply because the law “relates

to” a § 4(b) (3) exempt workers’ compensation plan.

The purpose of the reference in §514(a) to plans

“exempt under § 1003(b) of this title,” then, is to con-

form the preemption and coverage provisions of the stat-

ute’s text.° In particular, the § 1003(b) cross-reference

assures that the very state laws that would otherwise in-

sulate §4(b)(3) plans from affirmative ERISA cover-

age are not preempted.

The syntax of ERISA § 514(/a), however, makes lucid

that state laws are preempted insofar as the laws “re-

5 The conforming language is structurally necessary because, as

this Court opined in Alessi v. Raybestos-Manhattan, Inc., 451 U.S.

504, 525 n.20 (1981), “ERISA’s plain language . . . preempts not

plans, but ‘State laws.’” Section 4(b), on the other hand, exempts

from ERISA coverage generally not state laws but certain plans. /d.

Thus, § 4(a), which exempts § 4(b) plans from the affirmative cov-

erage of ERISA’s substantive provisions, would not, absent some

explicit statement in that regard, exempt laws relating to those

plans from the ERISA preemption provisions.

10

late to” ERISA employee benefit plans not exempt from

ERISA coverage under § 4(b), whether or not the state

law also relate to exempt plans.°

(b) Accordingly, in Shaw, this Court, addressing the

validity of a state law that mandated certain disability

benefit provisions, applied just this understanding of

ERISA § 514(a):

First, the Shaw Court held that the disability benefit

law in question did “ ‘relate to’ an employee benefit plan”

within the meaning of ERISA § 514(a) because the state

law “requires employers to pay employees certain bene-

fits.” 463 U.S. at 96-97.

Second, Shaw determines that the state statute is none-

theless enforceable with respect to an employer disability

benefit plan that “provides only those benefits required by

the applicable state law,” because of the exclusion from

preemption for laws relating to plans exempt from

ERISA under § 4(b). 463 U.S. at 107.

At the same time, the Court in Shaw held the state statute

unenforceable insofar as it required that employers pro-

vide certain disability benefits within “benefit plans [that]

. .. provide benefits not required by that law.” 463 U.S.

at 106-107. “|T|hose portions of the Airlines’ multibenefit

plans maintained to comply with the Disability Benefits

Law. .. are not exempt from ERISA and are not subject

to state regulation.” /d. at 107. While “|/a] State may

* The statute, for example, could have provided, but does not,

that ERISA supersedes state laws “insofar as they ... relate to

any employee benefit plan described in § 4(a)” but “shall not super-

sede any law relating to any employee benefit plan exempt under

$4(b),” In that event, the statutory language would have been

ambiguous with regard to state laws bearing the requisite relation-

ship to both ERISA-covered and non-ERISA covered employee bene-

fit plans. As actually drafted, however, the language negates any

possible ambiguity, by making clear that the requisite relationship

to an ERISA-covered benefit plan is sufficient, without regard to any

additional relationship to a non-covered benefit plan.

11

require an employer to maintain a disability plan com-

plying with state law as a separate administrative unit”

(id. at 108, emphasis supplied), a state may only permit,

but not require, an employer to comply with state law by

including mandated disability benefits within an ERISA-

covered plan (id.).

(c) The D.C. Circuit’s understanding of this aspect of

Shaw was not strictly accurate: The court of appeals

said that “[t]he key issue in distinguishing Shaw from

this case is that the Court in Shaw never found that the

New York Disability Benefits Law related to an ERISA-

covered plan.” 948 F.2d at 1323 (emphasis in original).

In fact, as recounted above, this Court did find that the

New York disability law “related to” an ERISA-covered

plan insofar as New York required that employee benefit

plans providing benefits other than those mandated by

state law also provide mandated disability benefits.

That infelicity aside, the D.C. Circuit got the threshold

point right. Insofar as Shaw upheld the New York Dis-

ability Law, it was because “|t|he [only] plan to which

the New York Disability Benefits Law related was exempt,

so the law did not qualify at the threshold for preemp-

tion.” 948 F.2d at 1323."

Nothing in Shaw, then, insulates from ERISA’s pre-

emptive reach state laws that relate to both ERISA-

covered employee benefit plans and benefit plans exempt

from ERISA coverage under §4(b). The outcome of

this case, then, turns upon whether or not the points of

intersection between the Equity Amendment Act and

ERISA-covered health benefit plans constitute, as the

D.C. Circuit held, a sufficient relationship between the

statute and those plans to trigger ERISA § 514/a) pre-

emption.

7 As we note below (at p. 16), under this analysis, the Court in

Shaw necessarily held there is not a sufficient relationship to trigger

preemption where the State provides a non-ERISA compliance op-

tion, but also permits compliance through an ERISA-covered plan.

12

3. The Reach of ERISA § 514(a) Preemption Generally:

Shaw considered not only ERISA § 4(b)(3) and the

interaction of that provision with ERISA § 514(a) pro-

visions, but also addressed the correct interpretation of

§$ 514(a) standing alone.

(a) Shaw concerned two state laws, one the Disability

Benefits Law discussed above, mandating the payment of

certain benefits from employee benefit plans, the ciher a

state law prohibiting pregnancy-based discrimination in

employee benefits plans. The state statutes, then, di-

rectly and substantially controlled the operation of em-

ployee benefits plans (although not necessarily, as dis-

cussed above, ERISA-covered employee benefit plans), by

mandating in certain respects how those plans are to

operate. 463 U.S. at 97 (“the Human Rights Law .

prohibits employers from structuring their employee ben-

efits in a manner that discriminates on the basis of preg-

nancy, and the Disability Benefit Law, .. . requires em-

ployers to pay employees specific benefits.” )

Shaw concluded that the relationship between each of

these two statutes and ERISA-covered benefit plans comes

within the preemptive reach of §514(a). In coming to

that conclusion, the Court considered and rejected two

specific arguments limiting the reach of § 514(a). Those

arguments set the context in which Shaw’s “connection

with or reference to” standard was first enunciated.

first, the state in Shaw maintained that “$514(a)...

preempt(s] only state laws specifically designed to affect

employee benefit plans.”” 463 U.S. at 98. Because “|i|t

would have been unnecessary to exempt generally ap-

plicable state criminal statutes from preemption. . . if

$514(a) applied only to state laws dealing specifically

with ERISA plans,” and because ERISA § 514(b) (4)

states just such an express affirmation of state criminal

law authority, the Court rejected that contention. At the

same time, there is nothing in Shaw embracing the con-

verse proposition, that whenever a state statute does men-

13

tion employee benefit plans in a way that includes ERISA-

covered plans, that state statute is, without more, pre-

empted.

Second, on the basis of the legislative history of

§$514(a), Shaw disavowed New York’s suggestion that

ERISA “can... be interpreted to pre-empt only state

laws dealing with the subject matters covered by ERISA

—reporting, disclosure, fiduciary responsibility, and the

like.” 463 U.S. at 98.

That history showed that earlier versions of ERISA’s

preemption provisions would have superseded state laws

“relat|ing] to” only the particular aspects of employee

benefit plans regulated by ERISA. As the legislative

process went forward the locution of the requisite pre-

emptive intersection between the federal law and state

laws——“related to’’-remained unchanged. See 463 U.S.

at 98 n.18. But as the legislation progressed, the class

of state laws that were to be preempted was enlarged to

include not only state laws that regulate benefit plans in

the same way ERISA regulates such plans—-in the case of

employee welfare benefit plans by requiring reporting,

disclosure, imposing fiduciary responsibility, and provid-

ing certain remedial provisions—but also state laws gen-

erally regulating benefits pians.*

®* The language of ERISA §514/a), on its face, does not unmis-

takably indicate that broad “field” preemption is intended. Unlike

the preemption language in some other statutes, §514(a) does not

flatly prohibit the enactment or enforcement of state laws within a

given field of application. Compare, e.g., 49 U.S.C. $1205(a)(1)

(“no State ... shall enact or enforce any law, rule. regulation,

standard or other provision having the force and effect of law

relating to rates, routes, or services of any air carrier”): see also

Morales wv. Trans World Airlines, supra, construing that section

as broadly preemptive, in reliance on the ERISA preemption cases.

Instead, §514(a) provides that “the provisions of this title and

title IV shall supersede any and all State laws” relating to ERISA-

covered employee benefit plans. (Emphasis supplied). Read without

regard to the legislative history, one could well have concluded that

a federal statutory “provision” can “supersede” a state law only

14

Thus, in every instance, the members of Congress who

managed the bill in the House and the Senate, quoted in

Shaw, described the final, conference version of § 514(a)

as preempting state actions specifying in some manner

requirements for the operation of ERISA plans, not as

preempting laws which merely mention ERISA plans or

have some derivative impact on those plans or on em-

ployer behavior with respect to those plans. For example,

Representative Dent, in the passage quoted in Shaw,

stressed that the conference version of § 514(a) was in-

tended to assure “the reservation to Federal authority

[of] the sole power to regulate the field of employee ben-

efit plans .. . by eliminating the threat of conflicting and

inconsistent State and local regulation.” 463 U.S. at 99,

quoting 120 Cong. Rec. 29197 (1974) (emphasis sup-

plied). Similarly, Senator Williams referred to an inten-

tion “to preempt the field for Federal regulations, thus

eliminating the threat of conflicting or inconsistent State

and local regulation.” Id., quoting 120 Cong. Ree. at

29933 (emphasis supplied). And Senator Javits said that

$514(a) addresses “the desirability of further regulation

—at either the State or Federal level.” Jd. at 99 n.20,

quoting 120 Cong. Ree. 29942 (1974) (emphasis sup-

plied) ; see also Senator Javits’ comment, in a colloquy

not quoted in Shaw, that with respect to plans providing

prepaid legal services “it is intended that State regula-

tion—but not bar association ethical rules, guidelines, or

disciplinary actions” be preempted, Legislative History

of ERISA, 4789 (Sen. Labor Sub. Print, 1976) ; id. (“the

State, directly or indirectly through the bar, is preempted

insofar as there is the particular federal provision covers an issue

addressed by that state law; under this view, where there is no

ERISA provision available to override a state law on a common

subject, the state law could be enforced.

Consequently, it is ERISA legislative history, not the statutory

language standing alone, that provides the requisite evidence that

broad field preemption was intended, and that indicates the limita-

tions of that broad field preemption as well.

15

from regulating the form and content of a legal service

plan”) (emphasis supplied).

Shaw in two respects recognizes, moreover, that the

“relate to” connection must ordinarily be one pursuant

to which the state law substantially and necessarily affects

ERISA-covered employee benefit plans and that a mere

contingent impact, a simple mention, or remote, deriva-

tive effect is not an ERISA § 514(a) relationship.

First, as noted above, Shaw explicitly states that

“{slome state actions may affect employee benefit plans in

too tenuous, remote, or peripheral a manner to warrant a

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

100 n.21. The very locution used—that § 514(a) concerns

“state actions” that “affect” employee benefit plans—

demonstrates that there must, at a minimum, be some

impact on the plan because of the state action; state laws

that mention or refer to employee benefit plans not in

order to affect the plans but in order to accomplish some

other end plainly do not come within this language.

Second, Shaw necessarily—although without directly so

acknowledging—approved as not “relating to” an ERISA-

covered employee benefit plan a state statute that pro-

vides employers with the option of complying by altering

an ERISA-covered plan, or by creating a free-standing,

non-ERISA covered compliance scheme.* A valid state

disability benefits statute, according to Shaw, could per-

mit, but not require, compliance through inclusion of

mandatory disability benefits in an ERISA-covered plan.

Presumably, such a statute, or its implementing regula-

tions or adjudicatory decisions, would have to so state,

so that employers could be aware that this option exists.

* The D.C. Circuit opinion in this case missed this point because

that court misunderstood the factual context of Shaw. See p. 6,

supra. Since the D.C. Circuit was erroneously of the view that no

ERISA-covered employee benefit plan was at issue in Shaw, that

court did not recognize that the Disability Benefits Law in Shaw,

as upheld, did have some connection to an ERISA-covered plan.

16

Shaw, therefore, necessarily determined that the state

law under attack would not “relate to” the ERISA-covered

plan simply because the state statute mentions the possi-

bility of compliance through that plan, or because the

state permitted employers, on an optional basis, to sub-

stitute compliance through an ERISA-covered plan for

compliance through an option not within ERISA’s cov-

erage.

Put another way, had those tenuous connections to

ERISA-covered plans been sufficient to bring a state law

within the “relate to” language of § 514(a), Shaw could

not have allowed the state to “force the employer to

choose between providing disability benefits in a sep-

arately administered plan and including the state-man-

dated benefits in its ERISA plan.” 463 U.S. at 108;

see also id. at 109 (“[wle further hold that the Disability

Benefits Law is not preempted by ERISA, although New

York may not enforce its provisions through regululion of

ERISA-covered benefit plans.” )

In short, Shaw cannot fairly be read as holding inter-

actions between employee benefit plans and state laws of

the weak kind relied upon by the D.C. Circuit here are

sufficient to constitute a §514(a) relationship. To the

contrary, the Shaw opinion and the legislative history

upon which the opinion relies is that Congress intended

the broad reach of § 514(a) to extend to all state laws

with an impact upon the internal operation of employee

benefit plans that is both substantial and unavoidable.

(b) The results and analyses in all the post-Shaw de-

cided cases are consistent with the basic standard just set

forth with one caveat: The Court has evolved a special

rule for those sui generis state laws that are expressly

designed to affect ERISA-covered employee benefit plans

alone. Taking motive as sufficient to demonstrate effect,

the Court has in those instances not inquired into either

the actual impact of the statute or whether that impact

17

is avoidable, but has instead declared such statutes pre-

empted, without more.

(i) Metropolitan Life Ins. Co. v. Massachusetts, 471

U.S. 724 (1985)—the next case after Shaw in the ERISA

preemption line—and Pilot Life Ins. v. Dedeaux, 481 U.S.

41 (1987) (which is analytically indistinguishable from

Metropolitan Life for present purposes) involved state

laws substantially affecting whether or not employee ben-

efit plans generally (but not ERISA-covered benefit plans

particularly) are required to pay benefits under certain

circumstances."” The state action in each instance could

be said to effect benefit plans “indirectly” (Metropolitan

Life Ins. Co., 471 U.S. at 739), rather than directly, but

only in the sense that the state rule in question was in

terms addressed not to benefit plans as such, but to the

insurers who provide benefits under such plans." Since

'” Metropolitan Life involved a state law mandating that certain

benefits be paid under any group health plan. See 471 U-S. at 729-

40. Pilot Life did not specify particular benefit payments, but set

standards for judging the behavior of employee benefits plan admin-

istrators in determining whether or not the terms of the plan require

payment of benefits. 481 U.S. at 48. The distinction between these

two kinds of mandatory requirements governing the payment of

benefits by employee benefit plans is immaterial to ERISA pre-

emption.

' This was also the sense in which the Court in Alessi v.

Raybestos-Manhattan, Inc., supra, 451 U.S. at 525 used the term

“indirect” in describing the reach of ERISA § 514(a). In that case,

the state statute in question was part of its workers’ compensation

law, but necessarily affected pension plans as well by prohibiting

those plans from setting off workers’ compensation benefits against

pension benefits. Jd. at 521. The effect on pension plans was “in-

direct” only in the sense that the statute in terms was a protection

of the right to workers’ compensation benefits, not a limitation upon

the pension benefit plans. But the latter impact was in no way

speculative or contingent; rather, a pension benefit plan that pro-

vided for workers’ compensation setoffs would violate state law.

. As Alessi explained, the reason for including state action indirect

in this sense was “to preclude the States from avoiding through

18

insurers not in compliance with the state payment stand-

ard would not be available to employee benefit plans in

the state at all, the impact upon insured plans was in

no way speculative, contingent, or derivative.

As Metropolitan Life put the point, the impact upon “all

insured benefit plans” was “substantial||”, since the stat-

ute in question “requires” that such plans process and

pay benefits in a certain manner. 471 U.S. at 739 (em-

phasis added) ; see also FMC Corp. v. Holliday, —— U.S.

, 111 S. Ct. 403, 408-09 (1990) (holding that a state

statute that “prohibits plans from being structured in a

manner requiring reimbursement in the event of recovery

from a third party” (emphasis supplied) is preempted

because the statute dictates the employee benefit plan’s

payment formulae. )™

(ii) Fort Halifax Packing Co. v. Coyne, supra, did not

turn on the meaning of the “relate to” phrase in ERISA

$514(a), since the Court concluded that the state law

at issue in that case did not concern any “employee ben-

form the substance of the pre-emption provision.” 451 U.S. at 525.

See also p. 25, n.16, infra (discussing Alessi’s reliance on § 514

(c)(2), the definition of “State” within the preemption section, as

the source of its conclusion that indirect as well as direct state

action is precluded.)

12 FMC Corp. one of this Court’s recent ERISA preemption

cases, is instructive as well in demonstrating that while the Court

continues to repeat the Shaw pronouncement that a state statute

“relate[s] to” an employee benefit plan if the law has a “ ‘connec-

tion with or reference to such a plan’” (see 111 S. Ct. at 407),

the Court has never rested a preemption conclusion upon a state

law’s mere mention of an ERISA-covered employee benefit |

In FMC Corp., for example, the Court, after noting that the statute

in question, as a verbal matter, did have a “reference” to employee

benefit plans (111 S. Ct. at 408), went on to conclude that the state

law had a “connection” to benefit plans of a kind that had a sub-

stantial and unavoidable impact upon the interna! operations of

those plans (id. at 408-09). If a mere “reference” to benefit plans

were sufficient, the bulk of the “relate to” analysis in FMC Corp.

would have been entirely superfluous.

19

efit plan” at all. 482 U.S. at 7-8. Fort Halifax is none-

theless relevant here for two reasons.

The Maine severance benefit statute in Fort Halifax

provided that an employer must, upon closing a plant,

pay either a severance benefit specified by state law or

pay the benefits due under a contract providing for sev-

erance benefits. Jd. at 5. The Court concluded that such

a state-specified payment does not constitute an “employee

benefit plan” because there is no ongoing obligation to

make repeated payments. 482 U.S. at 7-8. The Court

also recognized, however, that an employer’s own contrac-

tual commitment to pay severance benefits could well con-

stitute an employee benefit plan within the meaning of

ERISA. 482 U.S. at 6 n.4, citing Holland v. Burlington

Industries, Inc., 772 F.2d 1140 (4th Cir. 1985), sum-

marily aff'd, 477 U.S. 901 (1986) ; Gilbert v. Burlington

Industries, Inc., 765 F.2d 320 (2nd Cir. 1985), summar-

ily aff'd, 477 U.S. 901 (1986). Thus, like Shaw, Fort

Halifax necessarily held that as long as a state law

creates one compliance option not covered by ERISA,

there is no preemptive “relation to” an ERISA-covered

employee benefit plan simply because the state provides

an alternative of complying with its requirement through

such a plan as well."

Second, and more generally, Fort Halifax explains the

purposes of ERISA preemption at some length, in a

13 It is worth noting that providing an optional ERISA-covered

compliance alternative necessarily intersects with and impacts upen

the ERISA-covered employee benefit plan in several ways: First

the state statute, regulation, or decision providing the option

almost certainly will “refer to” the ERISA-covered plan. Second

it is almost inevitable that there will be some practical incentive

to choose the ERISA-covered compliance alternative, simply because

the cost of maintaining one scheme for paving benefits is likely

to he less than the cost of maintaining two separate schemes

Indeed, a statute such as the one involved in Fort Halifar provides

an additional inducement, since an employer ean apparently opt « ut

of the statutorily-required benefits by paying contractual 9 verunes

benefits in any amount. .

20

manner that supports the conclusion that only substan-

tial and unavoidable impacts upon the actual operation of

employee benefit plans were ordinarily meant to be pre-

empted :

Statements by ERISA’s sponsors in the House and

Senate clearly disclose the problem that the preemp-

tion provision was intended to address. . . .

These statements reflect recognition of the admin-

istrative realities of employee benefit plans. . . . The

most efficient way to meet these responsibilities is to

establish a uniform administrative scheme, which

provides a set of standard procedures to guide proc-

essing of claims and disbursements of benefits. Such

a system is difficult to achieve, however, if a benefit

plan is subject to different regulatory requirements

in differing States. A plan would be required to keep

certain records in some States but not in others; to

make certain benefits available in some states but not

in others; to process claims in a certain way in some

States but not in others; and to comply with certain

fiduciary standards in some States but not in

others. ..

ERISA’s pre-emption provision was prompted by

recognition that employer’s establishing and main-

taining employee benefit plans are faced with the

task of coordinating complex administrative activi-

ties. A patchwork scheme of regulation would in-

troduce considerable inefficiencies in benefit program

operation. . . Pre-emption ensures that the admin-

istrative practices of a benefit plan will be governed

by only a single set of regulations. {471 U.S. at 9-

11 (emphasis supplied) .],

See also id. at 10-11 (reviewing the earlier cases in

which ERISA preemption was found, and concluding that

“We have not hesitated to enforce ERISA’s preemption

provision where state law created the prospect that an

employer’s administrative scheme would be subject to

conflicting requirements.”) (emphasis supplied).

21

Thus, Fort Halifaz’s analysis of the scope of ERISA

preemption indicates that § 514(a), for all its breadth,

would not apply where there is some tie between a state

law or regulation and an employee benefit plan, but that

tie does not necessarily subject plan designers and ad-

ministrators to differing requirements in structuring and

operating the plan.

(iii) Mackey v. Lanier Collections Agency & Service

Inc., 486 US. 825 (1988) is most a deciphered by

analyzing its second holding separately, and by then con-

sidering its initial holding in connection with Ingersoll-

Rend Co, v. McClendon, —— U.S. ——, 111 S. Ct. 478

).

Mackey held that a general state garnishment statute—

permitting garnishers to make employee benefit plans

parties to a suit and to secure a court order requiring

the plan to pay benefits to someone other than the desig-

nated beneficiary—does not sufficiently “relate to” an em-

ployee benefit plan so garnished to invalidate the state

law. 486 U.S. at 835-36. In coming to that conclusion, the

Mackey Court did not deny, as it could not, that a state

garnishment proceeding against an employee benefit plan

had a “connection with” that plan, and some likely im-

pact upon its internal administration. 486 U.S. at 831-

32. Rather, Mackey said that the connection in question

did not suffice.

In reaching that conclusion, Mackey surveyed the legis-

lative materials as a whole to determine whether the par-

ticular connection between employee benefit plans and

state garnishment procedures is one Congress intended to

include an ERISA § 514(a) relationship. The Court’s

conclusion was that “Congress did not intend to for-

bid the use of state-law mechanisms of executing judg-

ments against ERISA welfare benefit plans, even when

those mechanisms prevent plan participants from receiv-

ing their benefits.” 486 U.S. at 831-32

plied). (emphasis sup-

22

In other words, Mackey viewed the garnishment an

ceedings against an employee benefit plan as an +=

to an underlying and otherwise valid, non-ERISA “

proceeding against the individual plan beneficiary. od

sulating those judgments from enforcement against as

sets with substantial economic value would have compro-

mised the state’s ability to enforce rules of conduct en-

tirely unrelated to ERISA, because of a real but quite

minor impact upon the operation of ERISA employee

benefit plans. This, said the Court, Congress had not in-

tended to do.

(iv) The other aspect of Mackey, and the first of ye

two alternative holdings in Ingersoll-Rand, treated wit

state rules of decision in adjudication that had no —

ERISA-related purpose."* Indeed, in both Mackey an

Ingersoll-Rand, the state law -- question ye nye le

loyee compensation generally, or even

benefit plans pane but only to ERISA-covered ee

plans. See Mackey, 486 U.S. at 829; Ingersoll-Rand, 1

S Ct. at 483 (“in order to prevail, a plaintiff must

plead, and the court must find, that an ERISA plan ex-

ists and the employer had a pension-defeating motive in

terminating the employment.”) As such, the exclusion

from garnishment proceedings for ERISA-covered "4

fits plans only (Mackey, 486 U.S. at 828-29), and t e

cause of action for ERISA pension-defeating termination

only (Ingersoll-Rand, 111 S. Ct. 481) were | ——7

designed to affect employee benefit plans’ ”. Ingersoll -

Rand, 111 S. Ct. at 483, quoting Mackey, 486 U.S. at

829) (emphasis supplied).

- These unusual state laws, in other words, did not sim-

ply mention, refer to, or have a derivative effect upon

14 In Ingersoll-Rand, the Court rested its holding not solely upon

§514(a) preemption but, independently, upon the conclusion that

“the Texas cause of action would be preempted because it con-

flicts directly with an ERISA cause of action.” 111 S. Ct. at 484.

Thus. the “relates to” analysis in Ingersoll-Rand was not neces-

sary to the result reached in that case.

23

ERISA-covered employee benefit plans in the course of

accomplishing some separate objective within the state’s

legitimate area of concern. Instead, both state laws were

directed precisely at affecting ERISA-covered plans, and

such plans alone. See Mackey, 486 U.S. at 838 n.12

(emphasis supplied) (it is “singl{ing] out ERISA plans,

by express reference, for special treatment”, and not the

bare reference to benefit plans in the statute, that “pre-

empts the Georgia antigarnishment exception.” ) *

It was thus critical to the result in Mackey that the general

garnishment statute was held nonpreempted. If, instead, the Court

had concluded that the general garnishment statute is preempted

as applied to ERISA-covered employee benefit plans, then the statu-

tory “special treatment” for those plans would have been compelled

by the federal scheme, and statutory references to that exclusion

could not have been the basis, standing alone, for concluding that

the exclusion evidenced a state purpose to affect employee benefit

plans.

Similarly, state tax statutes must often “refer to” employee bene-

fit plans in the purely verbal sense in order to explain whether

contributions to or benefits paid by those plans are treated as

taxable income or not, and, if the plan contributions or benefits

are taxable, to provide for the tax calculation. See, e.g., Retirement

Fund Trust v. Franchise Tax Board, 909 F.2d 1266, 1270 n.13 (9th

Cir. 1990). The alternative of ignoring in state tax laws, regula-

tions, and decisions the state tax treatment of ERISA employee-

benefit-plan related contributions or benefit payments is entirely

impractical.

Those contributions and benefits have real world economic value,

are often provided as tradeoffs for taxable cash income, and resemble

taxable income in that they are basically a form of compensation for

employment. Obviously, these explanatory verbal references to em-

ployee benefit plans cannot, alone, sustain the conclusion that the

statute “relates to” an employee benefit plan and is therefore pre-

empted by ERISA.

Moreover, there is no self-evident answer to the question

whether it is taxing or not taxing the various economic values em-

ployee benefit plans generate for participants that “relates to” the

employee benefit plan; rather, in either case the state law “re-

lates to” the plan both in the verbal sense and in the sense that

the tax treatment may well affect whether contributions to the plan

24

This aspect of Mackey and the holding in Ingersoll-

Rand, consequently, do not rest simply upon the linguistic

mention of ERISA-covered employee benefit plans in a

state statute. Both decisions do state, however, a special

doctrinal corollary to the principles that have generally

governed the interpretation of the “relates to” language

of §514(a): Where the state statute singles out ERISA-

covered employee benefit plans particularly for unique

treatment and does so for the principal purpose of di-

rectly affecting those plans, the Court has proscribed such

direct state entries into the governance of ERISA plans,

without regard to the actual impact of the statute upon

ERISA plans. In effect, the Court has determined that

where the central role of a state statute is precisely to

affect only the federal interests in ERISA-covered em-

ployee benefit plans, there is no reason to apply a more

flexible preemption standard in order to accommodate

legitimate, non-ERISA-related state interests.*®

will be made at all, if so in what amounts, and when, and in what

amount and when benefit payments will be made.

Consequently, the few courts that have addressed ERISA pre-

emption of state tax statutes have generally regarded a neutral tax

law that broadly “ ‘applies to employees without regard to their

status as ERISA participants “as one that does not ‘relate to’ ERISA

plans” and is therefore not preempted, even if the result is to tax

ERISA benefit plan contributions or benefit payments. Retire-

ment Fund Trust v. Franchise Tax Board, 909 F.2d at 1282; Fire-

stone Tire & Rubber Co. v. Neusser, 810 F.2d 550 (6th Cir. 1987).

Conversely, where employee benefit plans themselves are singled

out for unique taxes not otherwise levied on similar economic

entities and transactions, such taxes are held to come within ERISA

§514(a), as state laws that single out benefit plans for special

treatment. E-Systems v. Pogue, 929 F.2d 1100 (5th Cir.), cert.

denied, —— U.S. ——, 112 S. Ct. —— (1991); General Motors v.

California Board of Equalization, 815 F.2d 1305 (9th Cir. 1987),

cert. denied, 485 U.S. 491 (1988).

16 We note that this understanding of the ERISA § 514(a) analysis

of Ingersoll-Rand may explain one aspect of that decision that is

otherwise difficult to square with established principles of statutory

25

construction generally, and of th :

ticularly. e construction of § 514 par-

+f ERISA 3 514(c) (2), 29 U.S.C. §1144(c)(2), provides: “The

rm “State” includes a State, any political subdivision thereof

or any agency or instrumentality of either, which purports to regu

late, directly or indirectly, the terms and conditions of employee

a plans covered by this subchapter.” (emphasis supplied).

lessi v. Raybestos-Manhattan, Inc., supra, relied upon this section

of the statute as providing guidance in determining the preemptive

ey of the “relates to” language of §514(a), “mak[ing] clear

at even indirect state action bearing on private pensions may

encroach i jurisdicti

a upon the area of exclusive federal jurisdiction.” 451 U.S.

In Ingersoll-Rand, however, without acknowledging at all the

reliance of Alessi upon § 514(c) (2), the Court indicated that the

only statutory role of that provision is to include within ERISA’s

preemptive Scope “state agencies and instrumentalities whose ac-

tions might not otherwise be considered state law.” 111 S. Ct. at

484, That construction of §514(c) (2), if applied generally, would

conflict squarely with Alessi, and raise the question anew whether

state action not addressed to ERISA benefit plans as such are

within §$514(a). See pp. 26-27, infra. The Ingersoll-Rand con-

struction of §514(c)(2) would also result in reading out of

the statute the last eighteen words of § 514(c) (2). Under that

construction, it appears, the only operative effect of that statutory

section would be accomplished simply by including “any political

subdivision, thereof, or any agency or instrumentality of either ;”

the rest of the statutory provision—‘“which purports to veguiate

directly or indirectly, the terms and conditions of employee bene

fit plans covered by this subsection”—would be superfluous. As

such, the /ngersoll-Rand interpretation of § 514(c) (2), if applied

generally, would violate “ ‘the established principle that a court

should give effect, if possible, to every clause and word of u

statute.’” Feist Publications v. Rural Telephone Co., U.S

111 S. Ct. 1282, 1284 (1991), quoting Moskal v. United States 498

U.S. ——, 111 S. Ct. 461, 466 (1990).

Moreover, the legislative history summarized above shows that

members of Congress uniformly referred to state regulation in

describing the preemptive reach of the final version of ERISA

within the statute’s preemptive scope, not other forms of state

action. See pp. 13-16, supra. And, in any event, the kind of

26

4, Application of ERISA § 514(a) to the Connection Be-

tween the Equity Amendment Act and Respondent's

Health Benefits Plan:

The D.C. Circuit ruled that the Equity Amendment Act

“relates to” ERISA-covered employee benefits plans

within the meaning of ERISA § 514(a) because the state

law defines the required health benefits payable to workers

eligible for workers compensation as benefits equivalent

to those provided under the employers’ basic health bene-

fit plan. 948 F.2d at 1323. This kind of connection be-

tween a state statute and an ERISA-covered benefit plan

cannot suffice to support §514(a) preemption under the

analysis of this Court’s cases presented above:

First, as that analysis shows, this Court has never

held that a purely verbal state law “reference to” an em-

ployee benefit plan, standing alone, is sufficient to “re-

late’ the state law to the employee benefit plan in the

$ 514(a) sense.

Second, the Equity Amendment Act does not relate to

ERISA-covered employee benefit plans under the gen-

ertlly applicable standard for determining the reach of

$514(a). The Act has no substantial, unavoidable im-

pact on the ERISA-covered health benefit plans in ques-

tion; nothing in the Act requires that employers alter

their ERISA-covered plan in any way. And, Shaw estab-

lishes, as we have seen, that simply providing employers

with the option of complying with a statutory requirement

state action involved in Ingersoll-Rand was regulatory in the sense

that it established a mandatory rule of behavior.

The reference to “regulat[ion]” in § 514(c) (2) should therefore

be read, at a minimum, as a guide toward interpreting the “relates

to” language in § 514(a) as ordinarly limited to such mandatory rules

of behavior, rather than other forms of state action. Under that

approach, only where the state statute unambiguously, directly, and

predominantly “relates to” ERISA-covered employee benefit plans

alone would that interpretative guide be unnecessary and non-

regulatory state actions preempted as well.

27

through a qualifying ERISA plan, where a non-ERISA

covered weeks of compliance is also available, is not a

— relationship to trigger § 514(a)’s preemptive

orce.

Third, the Equity Amendment Act is not within the

narrow range of circumstances, exemplified by the garnish-

ment exclusion aspect of Mackey and by Ingersoll-Rand,

in which the state statute in question is specifically de-

signed to affect ERISA plans, and singles out such plans

for special treatment. Rather, the state law is designed

to provide a flexible measure of an appropriate level of

health benefits, sensitive to particular employment situa-

tions, payable by a workers compensation plan exempt

from ERISA’s coverage under § 4(b) (3). And the state

law, far from singling out ERISA-covered health bene-

fit plans for special treatment, expressly provides a means

of compliance which leaves existing ERISA benefit plans

entirely intact, and treats ERISA and non-ERISA health

benefit programs identically for purposes of the statutory

equivalency standard.

Fourth, and finally, the opinion below devotes consid-

erable attention to demonstrating that the Equity Amend-

ment Act “could have a substantial effect on the adminis-

tration of an ERISA-covered plan” because “the addi-

tional financial burden associated with an increase in

ERISA health benefits “—viz, the increase in non-ERISA

health benefits—“could induce an employer” to “choose to

forego such an increase altogether.” 948 F.2d at 1325

(emphases supplied). Speculations of this kind on pos-

sible derivative employer reactions to the economic impact

of state laws that do not otherwise “relate to” employee

benefit plans within the meaning of § 514(a), cannot pos-

sibly supply the statutory relationship that does not other-

wise exist.

All manner of state laws entirely separate from any

ERISA-covered employee benefit plan may affect, for eco-

nomic reasons, an employer’s decision (or the decision

of an employer and a union through collective bargaining)

whether to maintain particular ERISA-covered benefit

plans, and what terms and conditions to include in such

plans. State and local minimum wage laws, taxes on in-

dividual and corporate income, unemployment compensa-

tion and other payroll taxes, sales taxes, and environ-

mental regulations all affect both the total cost of doing

business in a particular area and the amount and nature

of employee compensation, and may thereby influence,

to the same or greater degree than does the Equity Amend-

ment Act, the design of ERISA-covered employee bene-

fit plans."”

The prevalence of this kind of economic interaction only

demonstrates that complete insulation of ERISA-covered

employee benefit plans from the al! nonfederal legal in-

fluence, or even all substantial nonfederal influence, is

an impossibility under our complex form of government.

Congress clearly did not intend to enact such an absurdity

in making a last-minute change broadening the preemp-

tive scope of ERISA in the Conference Report. By far

the better reading of ERISA § 514(a), as the legislative

- materials and case law surveyed above establish, is that

what Congress addressed in {£514(a) is the much nar-

rower (but still numerous) class of state laws whose

purpose is to affect ERISA-covered employee benefit pians,

or that clearly, substantially, and inevitably have an im-

pact on ERISA-covered plans.

17 For example, the opinion below conceded that there would be

no preemption if the state statute simply specified minimum levels

of health benefits payable to workers compensation recipients. If

those minimum levels were higher than the health benefits paid

under an employer's standard health benefit plan, the actual impact

on the ERISA-covered health benefit plan is likely to be greater

then the effect of the state law at issue here: The employer would

be under pressure to conform its standard health plan to the one

prescribed by the state for workers compensation recipients, yet

would have less money available to distribute for health benefits

generally because of the inflexibility of the law governing the

ERISA-exempt plan.

29

In totality, then, the Equity Amendment Act bears no

different relationship to ERISA-covered employee benefit

plans than a state rule that includes the economic value

of benefit plans in calculating the damages due to an

individual who has for some reason suffered an action-

able decrease in earnings."* In both instances, there must

be a verbal “reference to” the terms of the ERISA-

covered plan in order to apply the state rule. In both

instances, however, the state rule in question is designed

not to affect the ERISA-covered plan, but to affect a

form of compensation or payment entirely outside ERISA

coverage."” And in both instances, the ERISA-covered

plan is either not affected at all, or is affected only de-

rivatively, speculatively, and insubstantially, through

some conceivable influence on employers when they design

their ERISA-covered plans worked by the prospect that

injured employees will be entitled to equivalent benefits.

The lower courts considering the impact of ERISA’s

preemption provisions on such state law damages calcula-

tion principles have concluded, correctly in our view, that

Congress could not have intended to reach tenuous con-

nections of this kind through ERISA’s preemption provi-

sions. E..g., Martori Bros. v. James-Massengale, 781 F.2d

1349, amended, 791 F.2d 799 (9th Cir.), cert. denied, 479

--

'* These situations include, for example, violation of any employ-

ment contract; termination in violation of public policy, or without

just cause, under a state statute or common law rule providing

causes of action for such terminations; an automobile injury or

other physical injury leading to incapacity to work; or illega! fail-

ure to bargain over a collective bargaining agreement, where state

law covers the particular collective bargaining relationship and

mandates a make-whole remedy replicating the economic value of

the agreement that would have been reached.

In a damages action, for example, individuals are typically

paid in noncontingent cash, a form of compensation certainty not

within ERISA‘s statutory coverage. See generally Massachusetts

v. Morash, 490 U.S. 107 (1989).

U.S. 149 (1986); Pizlo v. Bethlehem Steel Corp., 884

F.2d 116, 120 (4th Cir. 1989); Ethridge v. Harbor House

Restaurant, 861 F.2d 1389 (9th Cir. 1988).” For the

same reasons, there is no ERISA § 514(a) preemption of

the District of Columbia’s Equity Amendment Act.

CONCLUSION

For the above stated reasons, the decision of the court

below should be reversed.

Respectfully submitted,

MARSHA S. BERZON

177 Post Street, Suite 300

San Francisco, CA 94108

(415) 421-7151

LAURENCE GOLD

(Counsel of Record)

815 16th Street, N.W.

Washington, D.C. 20006

(202) 637-5390

2 It bears noting, indeed, that workers compensation plans are

a substitute for tort recovery, and ordinarily extinguish tort

causes of action for occupational injuries. Were such tort causes

of action still available against employers, damages for loss of

compensation would presumably include retroactive damages meas-

ured by the economic value of health benefits lost during the pe-

riod of incapacity. No reason appears why, in devising the work-

ers compensation substitute, states cannot require that the same

purpose be met by prospectively providing a non-ERISA covered

benefit plan, similarly measured by the otherwise available health

benefits.