Amicus Curiae Brief — De Buono v. NYSA-ILA Medical and Clinical Services Fund

Supreme Court, U.S.

FILED

U wOV 27 1996

No. 95-1594

IN

Supreme Court of the United States

OCTOBER TERM, 1995

BARBARA A. DE BUONO, MD., in her capacity as New York State

Commissioner of Health; KAREN SCHIMKE in her capacity as New

York State Executive Deputy Commissioner of Health; DEPUTY

DIRECTOR, Division of Health Care Financing, Office of Health

Systems Management, New York State Department of Health,

Petitioners,

Vv.

NYSA-ILA MEDICAL AND CLINICAL SERVICES FUND, by its Trustees,

JOHN BOWERS, JAMES CAPO, FRANK LONARDO, WILLIAM P. LYNCH,

M. BRIAN MAHER, JAMES P. MELIA, GERALD OWENS, and PETER

VICKERS,

Respondents.

On Writ of Certiorari To The

United States Court of Appeals

For the Second Circuit

BRIEF AMICUS CURIAE OF THE

NATIONAL EMPLOYMENT LAWYERS ASSOCIATION

IN SUPPORT OF PETITIONERS

JEFFREY LEWIS MARY ELLEN SIGNORILLE

SIGMAN, LEWIS & FEINBERG (Counsel of Record)

405 Fourteenth St., Suite 1100 601 E Street, N.W

Oakland, CA 94612 Washington, DC 20049

(510) 839-6824 (202) 434-2070

Counsel for Amicus Curiae

National Employment Lawyers Association

YORK STATE’S LAW

HOSPITALS IS NOT PREEMPTED BY ERISA

BECAUSE THE LAW DOES NOT DIRECTL

G. If A State Law Accomplishes Through A Severe

Directly, It Is Preempted ............. 19

Under Any Of The Steps In NELA’s Suggested

Framework For Analyzing ERISA Preemption

Ge cla hd bd6 ee Ge ehe tec ceedbonr 20

Gee 6 GaSb ad wok bb bseTevvcivigeces 20

TABLE OF AUTHORITIES

Aetna Life Insurance Co. v. Borges,

869 F.2d 142 (2d Cir.), cert. denied,

Ge ED Swe ccc cc cece ccccccses:

Airparts Company, Inc. v. Custom Benefit Services

of Austin,

28 F.3d 1062 (10th Cir. 1994) 2... 2. ee eens

Akers v. Palmer,

71 F.3d 226 (6th Cir. 1995), cert. denied,

TS PTET TITELL TTL

Alessi v. Raybestcs-Manhatian, Inc.,

451 U.S. 504 (1981) 2... eee 3, 4, 6,

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

Hospital, Inc..,

947 F.2d 1341 (8th Cir. 1991), cert. denied,

SP, SPEED oc ce SUS sc cc cccsesoveces

v. Boggs,

89 F.3d 1169 (Sth Cir.), cert. «x

65 U.S.L.W. 3332 (U.S., Nov. 1, 1996) .........

Boyle v. Anderson,

68 F.3d 1093 (8th Cir. 1995), cert. denied,

| |e. ll ees ee

SS See

Construction, N.A., Inc.,

$7 F.3d 712 (9th Cir. 1995), cert. granted,

116 S. Ct. 1415 (U.S., Apr. 15, 1996) ...........

Cipollone v. Liggett Group, Inc.,

} Fe =e e ee

Custer v. Sweeney,

89 F.3d 1156 (4th Cir. 1996) ................, 14, 17

Lighting, Inc. v. Missouri,

Se SE cc ckdabicels dn hate ticeecee

DeCanas v. Bica,

Gee ED 0-0.0004000068ens ile das 14, 18

District of Columbia v. Greater Washington Board

of Trade,

See BED once cuete stain 4, 6, 11,

Firestone Tire & Rubber Co. v. Bruch,

GP Gas: CED 6 6 bee Ss SU HRE ie Sek oc th

Forbus v. Sears Roebuck & Co..,

30 F.3d 1402 (11th Cir. 1994), cert. denied,

Sar Gh Gb SUE Wacceacdccocsepsieccee 15,

General American Life Insurance Co. v. '

984 F.2d 1518 (9th Cir. 1993) .......... 5, 15, 16,

HealthAmerica v. Menton,

555 So. 2d 235 (Ala. 1989), cert. denied,

Es LE ee ae Pe

Hewlett-Packard Co. v. Barnes,

571 F.2d 502 (9th Cir. 1978), cert. denied,

OE ere ree

Hospice of Metropolitan Denver, Inc. v. Group

Health Insurance of Okla., Inc.,

I

Co. v. McClendon,

EE. SEMEE UWS cose aseoe wes

Iron Workers Mid-South Pension Fund

v. Ti Corp.,

891 F.2d 548 (Sth Cir. 1990), cert. denied,

id ne ok ence we ees oe

John Hancock Mutual Life Insurance Co. v. Harris

Trust & Savings Bank,

iE DLibe des eicodvccc cours

Jordan v. Reliable Life Insurance Co.,

694 F. Supp. 822 (N.D. Ala. 1988) ..........

Lordmann Inc. v. Equicor, Inc.,

32 F.3d 1529 (11th Cir. 1994), cert. denied,

SPER SUED cocks boe Se sbsccece.

Mackey v. Lanier Coliection Agency Service,

SEG GUS ss. Soass2 0 ess.

Massachusetts v. Morash,

ET ee

Memorial Hospital System v. Northbrook Life

Insurance Co..,

904 F.2d 236 (Sth Cir. 1990) .............

Metropolitan Life Insurance Co. v. Taylor,

Ee i ceceeewe' at Oe beer oe

Metropolitan Life Insurance v. Massachusetts ,

GEE DE. GPGPU cc ctw eb cwccccsoccces

Morstein v. National Insurance Services, Inc. ,

PE, ED og ccc cccccess

.. 15, 18

iv

New York State Conference of Blue Cross & Blue

Shield Plans v.Travelers Insurance Co..,

ee ee Se couse ne passim

Pilot Life Insurance Co. v. Dedeaux,

Laven os cause enéee be passim

Rice v. Pancha,

SP eee Ce ED oboe s cee ddedebiiccov’ 17

Rice v. Santa Fe Elevator Corp.,

Se CREE Bi desdews 60.s bas didrar 9, 11, 13

Rokohi v. Texaco,

Se I ED noc cc cccccsccece 2, 8, 15

Shaw v. Delta Airlines, Inc.,

a 3, 6, 10, 14

-House Cases,

ee ey ee ee ED ns 60bidis dé 0 decd dc 14

Sommers Drug Stores Co. Employee Profit

Sharing Trust v. Corrigan Enterprises, Inc.,

793 F.2d 1456 (Sth Cir. 1986), cert. denied,

Gee EE b6 6 £6.60 0 cdbeeWe o stunt 15, 18

Thorpe v. Rutland & Burlington R. Co.,

SF Wee BD). we BOGE Ui oo dive wk sec ed cbows 14

Travitz v. Northeast Department ILGWU Health

& Welfare Fund,

13 F.3d 704 (3d Cir.), cert. denied,

SPE Rec ecccced débeecded 15, 18

United Wire and Machine Health and Welfare Fund

v. Morristown Memorial Hospital,

995 F.2d 1179 (3d Cir. 1993), cert. denied,

Gee Gb PE bMS be 0 Culds Bees oe oo wes 7

Varity Corp. v. Howe,

SOE ED Go Sido kbb cedecsccoceec 2, 15

Zuniga v. Blue Cross & Blue Shield of Michigan,

Pee COOGEE OUD cccccccccceeeccoces 14

CONSTITUTION STATUTES AND RULES

a ee ee anes 9

Retirement Income Security Act of

1974 (ERISA), 29 U.S.C. § 1001 etseg. ........... 2

§ S34), USC. § UGG) 2... ccc c eee eees passim

§ 514(cX(1), 29 U.S.C. § 1144(cX1) .... ee ee eee, 4

§ 514(c)(2), 29 U.S.C. § 1144 (ch2) ...........20... 4

I 3

MISCELLANEOUS

C. L. Fisk, The Last Article About the Language

of ERISA Preemption? A Case Study of the Failure

of Textualism, 33 HARV. J. ON LEGIS. 35 (1996)... ... 6,7

S. Stabile, Preemption of State Law by Federal Law: A

Task for Congress or the Courts?, 40 Vill. L. Rev. 1

SY CGA ie 460 Ce WE Gwe 6 6 bb Sd He ce éde eee 6

No. 95-1594

IN THE

Supreme Court of the United States

OCTOBER TERM, 1995

BARBARA A. DE BUONO, MD., in her capacity as New York State

Commissioner of Health; KAREN SCHIMKE in her capacity as New

York State Executive Deputy Commissioner of Health; DEPUTY

DIRECTOR, Division of Health Care Financing, Office of Health

Systems Management, New York State Department of Health,

Petitioners,

v.

NYSA-ILA MEDICAL AND CLINICAL SERVICES FUND, by its Trustees,

JOHN BOWERS, JAMES CAPO, FRANK LONARDO, WILLIAM P. LYNCH,

M. BRIAN MAHER, JAMES P. MELIA, GERALD OWENS, and PETER

VICKERS,

Respondents.

On Writ of Certiorari To The

United States Court of Appeals

For the Second Circuit

BRIEF AMICUS CURIAE OF THE

NATIONAL EMPLOYMENT LAWYERS

ASSOCIATION IN SUPPORT OF PETITIONERS

STATEMENT OF INTEREST OF AMICUS CURIAE

The National Employment Lawyers Association (NELA) is a

founded in 1985, of approximately 3,000

attorneys who specialize in representing individuals im controversies

arising out of the workplace. It is the country's only professional

2

benefits, wrongful discharge, and other employment-related

matters. NELA has devoted itself to supporting precedent-setting

litigation affecting the rights of individuals in the workplace.

NELA is qualified to brief the Court on the implications of the

decision in this case, having participated as amicus curiae in

numerous cases involving ERISA and other employment laws,

including among others, Varity Corp. v. Howe, 116 S. Ct. 1065

(1996), John Hancock Mutual Life Ins. Co. v. Harris Trust &

Savings Bank, 510 U.S. 86 (1993), and Firestone Tire & Rubber

Co. v. Bruch, 489 U.S. 101 (1989).

NELA members’ clients and other participants in pension and

welfare plans depend on ERISA to protect their rights under private

employer-sponsored employee benefit plans. 29 U.S.C. § 1001 er

seq. Contrary to its original purpose of safeguarding employee

benefits, ERISA through its preemptive effect has been used to

deprive employees of rights they previously enjoyed under state law

while failing to provide any comparable federal remedies. The

proliferation of ERISA preemption cases raises the question of

whether ERISA is having an effect contrary to that intended by

those who favored its adoption. To achieve uniform administration

of employee benefit plans, ERISA preemption need only be used as

a shield, not as a sword.”

This case, along with other ERISA preemption cases

Y See Rokohl v. Texaco, 77 F.3d 126, 130 (Sth Cir. 1996) (“an employer

may not use its ERISA plan as a ‘gimmick’ to trigger preemption and

thereby avoid litigation in state court. In the classic metaphor, ERISA

preemption may be used as a shield but not as a sword.” (citations

omitted)).

— —

3

currently pending before the Court,” presents the Court with the

opportunity to establish a more workable framework for the lower

courts to use for analyzing ERISA preemption cases. In particular,

the lower courts need a more precise test for determining the

boundaries of the phrase “relates to an employee benefit plan.”

The decision in this case will have a direct and vital bearing on

the economic security of NELA members’ clients and other

participants of pension and welfare plans. In light of the

significance of the issues presented by this case, NELA respectfully

submits this brief amicus curiae.¥

SUMMARY OF ARGUMENT

The number of cases the Court has decided construing the

phrase "relates to an employee benefit plan” in ERISA's

preemption clause illustrates the lower courts' struggle to define

the limits of "relates to." As this Court has recognized, this clause

is not a model of legislative drafting, and it has been difficult to

provide clear guidance to the lower courts to demarcate the limits

¥ California Division of Labor Standards Enforcement v. Dillingham

Construction, N.A., Inc., $7 F.3d 712 (9th Cir, 1995), cert. granted,

116 S. Ct. 1415 (U.S., Apr. 15, 1996) (No. 95-789) (whether ERISA

preempts state prevailing wage laws); Boggs v. Boggs, 89 F.3d 1169 (Sth

Cir.), cert. granted, 65 USLW 3332 (U.S., Nov. 1, 1996) (No. 96-79)

(whether ERISA preempts state community property laws).

¥ The written consent of each party has been filed with the Clerk of the

Court pursuant to Supreme Court Rule 37.3.

E.g., New York State Conference of Blue Cross & Blue Shield Plans v.

Travelers Ins. Co., 115 S. Ct. 1671 (1995); Ingersoll-Rand Co. v.

McClendon, 498 U.S. 133 (1990); Mackey v. Lanier Collection Agency

Service, 486 U.S. 825 (1988); Pilot Life Ins. Co. v. Dedeaux, 481 U.S.

41 (1987); Metropolitan Life Ins. v. Massachusetts, 471 U.S. 724 (1985):

Shaw v. Delta Airlines, Inc., 463 U.S. 85 (1983); Alessi v. Raybestos-

Manhattan, Inc., 451 U.S. 504 (1981).

4

of this clause.” Hence, not only has development of a uniform

framework to analyze ERISA preemption been frustrated, but the

courts have been flooded with removed cases and preemption

Claims.

NELA suggests the following framework to use in analyzing

ERISA preemption claims.” First, where a state law directly

conflicts with ERISA, the state law is preempted by ERISA. See,

e.g., District of Columbia v. Greater Washington Board of Trade,

506 U.S. 125 (1992); Alessi v. Raybestos-Manhattan, Inc., 451

U.S. 504 (1981). Second, if a claim can be brought under ERISA

§ 502(a), then the state law action must be preempted under ERISA

§ 514(a). See Ingersoll-Rand Co. v. McClendon, 498 U.S. 133

(1990); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987). Third,

if the state law is not in direct conflict with ERISA or a claim

cannot be brought under ERISA § 502(a), then it must be

determined if that state law specifically refers to an ERISA plan; if

SO, it is preempted. See New York State Conference of Blue Cross

& Blue Shield Plans v. Travelers Ins. Co. ("Travelers"), 115 S. Ct.

1671, 1677 (1995); Mackey v. Lanier Collections Agency &

Service, 486 U.S. 825, 841 (1988). Fourth, if the state law does

not directly reference an ERISA plan, it is presumed that a state

¥ New York State Conference of Blue Cross & Blue Shield Plans v.

Travelers’ Ins. Co.,115 S. Ct. 1671, 1676 (1995).

* ERISA preemption analysis involves numerous steps. The initial

inquiries under ERISA § 514(a) are whether a State, state law and an

employee benefit plan are involved. ERISA §§ 514(c)(1) & (c)(2), 29

U.S.C. §§ 1144(c)(1) & (c)(2). If any one of these inquiries is negative,

there can be no preemption. See Massachusetts v. Morash, 490 U.S. 107

(1989) (vacation payments from an employer's general assets did not

constitute a plan and therefore state law cannot be preempted); Fort

Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987) (a state law requiring

a one-time severance payment was not preempted because there was no

plan due to a lack of an ongoing scheme or administrative structure).

Here, none of the parties dispute that a State, state law and employee

benefit plan are involved. Only after the existence of a plan and a state

law are established does one begin NELA’s analysis.

5

law in an area of traditional state regulation is not preempted,

Travelers, 115 S. Ct. at 1671, unless the state law directly regulates

an ERISA-governed relationship, see, ¢.g, Airparts Company, Inc.

v. Custom Benefit Services of Austin, 28 F.3d 1062 (10th Cir.

1994); General American Life Ins. Co. v. Castonguay, 984 F.2d

1518 (9th Cir. 1993), or the state law accomplishes through an

acute indirect economic effect what it cannot do directly, that is,

regulate ERISA plans. See Travelers, 115 S. Ct. at 1683.

Adoption of such a framework will serve to produce more

uniformity in the interpretation of the phrase "relates to an

employee benefit plan," to implement Congress’ intent in enacting

ERISA's preemption clause, and to decrease the number of

preemption cases and claims flowing into the federal courts.

Applying this framework to the facts of this case, the New York

general operations of all hospitals in New York does not directly

conflict with ERISA, does not duplicate an ERISA claim under

ERISA § 502(a), does not reference an ERISA plan, and is a state

law in an area of traditional state regulation that neither directly

regulates an ERISA-governed relationship nor produces an acute

indirect economic effect. Thus, the state law does not "relate to an

employee benefit plan", and it is not preempted under ERISA

§514(a), 29 U.S.C. § 1144(a).

6

ARGUMENT

I. THE COURT SHOULD DEVELOP A MORE

WORKABLE FRAMEWORK FOR ANALYZING

ERISA'S PREEMPTION CLAUSE TO ACHIEVE

CONGRESS’ INTENT OF UNIFORM

ADMINISTRATION OF EMPLOYEE BENEFIT

PLANS.

Although the Court has attempted to provide guidance in the

area of ERISA preemption,” the lower courts are continuing to

struggle with the boundaries of ERISA's preemption clause,

particularly with the meaning of the phrase "relates to an employee

benefit plan." Memorial Hospital System v. Northbrook Life Ins.

” E.g., New York State Conference of Blue Cross & Blue Shield Plans v.

Travelers Ins. Co.,115 S. Ct. 1671 (1995); John Hancock Mutual Life Ins.

Co. v. Harris Trust and Savings Bank, 510 U.S. 86 (1993); FMC Corp.

v. Holliday, 498 U.S. 52 (1990); Ingersoll-Rand Co. v. McClendon, 498

U.S. 133 (1990); Massachusetts v. Morash, 490 U.S. 107 (1988); Fort

Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987); Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41 (1987); Metropolitan Life Ins. Co. v.

Massachusetts, 471 U.S. 724 (1985); Shaw v. Delta Airlines, Inc., 463

U.S. 85 (1983); Alessi v. Raybestos-Manhatan, Inc., 451 U.S. 504

(1981).

© See District of Columbia v. Greater Washington Board of Trade, 506

U.S. 125, 135 n.3 (1992) (Steven J., dissenting) (noting that in December

1992, there were 2800 cases on LEXIS addressing ERISA preemption);

HealthAmerica v. Menton, 555 So. 24 235, 241 (Ala. 1989), cert. denied,

493 U.S. 1093 (1990) (White and O’Connor, JJ., dissenting to denial of

certiorari); see generally C. L. Fisk, The Last Article About the

of ERISA Preemption? A Case Study of the Failure of Textualism, 33

HARV. J. ON LEGIS. 35, 58-59 (1996) (foomotes omitted) (“The relatively

large number of ERISA preemption opinions has not, however, led to

clarity in the law. The lower courts have decided thousands of preemption

cases, yet remain mired in confusion about basic points.”); S. Stabile,

Preemption of State Law by Federal Law: A Task for Congress or the

(continued...)

7

Co., 904 F.2d 236, 244 (Sth Cir. 1990). Indeed, more than one

judge has expressed frustration with ERISA preemption and its

impact. See, €.g., United Wire and Machine Health and Welfare

Fund v. Morristown Memorial Hosp., 995 F.2d 1179, 1197 (3d

Cir. 1993), cert. denied, 114 S. Ct. 382 (1993) (Nygaard, J.

dissenting) (“ERISA could become a legal black hole with an

attractive force no state law could resist.”); Jordan v. Reliable Life

Ins. Co., 694 F. Supp. 822, 827 (N.D. Ala. 1988) (“The ERISA

quicksand is fast swallowing up everything that steps in it or near

it. This morass serves as the stage for a theater of the absurd.”).

And, this Court recently acknowledged its own frustration in its

attempts to provide detailed guidance concerning ERISA

preemption, Travelers, 115 S. Ct. at 1676, mainly because

ERISA's preemption clause is not a "’model of legislative i

This Court's own experience with ERISA preemption illustrates

the lower courts’ struggle. The Court has issued twelve decisions

on this issue, even though ERISA has been in effect for only

twenty-one years. Roughly half of the cases which the Court has

decided concerning ERISA have been preemption cases.2 This

term alone the Court has granted certiorari in three ERISA

preemption cases.

¥(.. continued)

Courts?, 40 VILL L. REV. 1, 18 n. 42 (1995) (detailing the volume of

cases and law review articles on ERISA preemption).

” C. L. Fisk, The Last Article About the Language of ERISA Preemption?

A Case Study of the Failure of Textualism, 33 HARV. J. ON LEGIS. 35, 58-

59 (1996), cited with approval in Morstein v. National Ins. Services, Inc.,

93 F.3d 715, 719 n. 7 (11th Cir. 1996).

4,

and a shield to participants pursuing bona fide claims.

SeeRokohl v. Texaco, 77 F.3d 126, 130 (Sth Cir. 1996). ERISA's

a gt he cn catty ater a ear a

undercutting Congress’ objective in

oa. of employee benefit plans and safeguarding

participants’ benefits. Travelers, 115 S. Ct. at 1677-78;

Massachusetts v. Morash, 490 U.S. 107, 119 (1989). In order to

i in the application of ERISA's preemption

produce more uniformity

a more precise test for determining when a state law “relates to an

employee benefit plan."

fl. NEW YORK STATE’S LAW TAXING HOSPITALS IS

NOT PREEMPTED BY ERISA BECAUSE THE LAW

DOES NOT DIRECTLY CONFLICT WITH ERISA,

DOES NOT DUPLICATE A CLAIM UNDER ERISA §

502, DOES NOT REFERENCE AN ERISA PLAN, AND

IS A STATE LAW IN A TRADITIONAL AREA OF

STATE REGULATION THAT NEITHER REGULATES

AN ERISA-GOVERNED RELATIONSHIP NOR

PRODUCES AN ACUTE INDIRECT ECONOMIC

EFFECT.

A. ERISA Preemption Analysis Must Be Grounded In

The Presumption That A State Law Is Not

Unles« Congress’ Intent To Do So Is Clear.

ERISA preemption analysis is no different than any other

preemption analysis. John Hancock Mutual Life Ins. Co. v. Harris

Trust and Savings Bank, 510 U.S. at 99 ("we discern no solid basis

for believing that, Congress, when it designed ERISA, intended

fundamentally to alter traditional preemption analysis"). As with

other statutes, the Court has cautioned that, in order to avoid

unintentionally encroaching on state authority, courts should be

reluctant to find preemption when interpreting a federal statute.

Travelers, 115 S. Ct. at 1676; Rice v. Santa Fe Elevator Corp., 331

U.S. 218, 230 (1947) (“the historic police powers of the State [are]

not to be superseded by...[federal law]”). Accordingly, *’the

purpose of Congress is the ultimate touchstone of preemption

analysis."" Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516

(1992) (quoting Malone v. White Motor Corp., 435 U.S. 497, 504

(1978) (quoting Retail Clerks v. Schermerhorn, 375 U.S. 96, 103

(1963))); see U.S. Const. art. VI, cl. 2.

“To discern Congress’ intent we examine the explicit statutory

language and the structure and purpose of the statute.” Ingersoll-

Rand Co. v. McClendon, 498 U.S. 133, 138 (1990). Congress

explicitly stated its intent to preempt state laws in the

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

that ERISA “shall supersede any and all State laws insofar as

. . felate to any employee benefit plan” covered by the

In Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983), the

Court explained that state law relates to an employee benefit plan

“if it has a connection with or reference to such a plan.”

Nevertheless, the Court admonished that "[s}ome 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.”

Shaw, 463 U.S. at 100 n. 21. It follows that “relates to” must have

some limitation, otherwise it “would never run its course.”

Travelers, 115 S. Ct. at 1677. To hold otherwise would be

inconsistent with the presumption against preemption absent a clear

indication of Congressional intent to do so, in order that state law

is given the fullest effect possible. Travelers, 115 S. Ct. at 1676-

78; Mackey v. Lanier Collections Agency & Service, 486 U.S. 825,

841 (1988).

Although the Court reiterated the

11

B. If A State Law Conflicts With

> Directly ERISA, It Must

conflicts with a federal law, either on its face or in application,

disclosure, vesting, and the like, Hewlett-Packard Co. v. Barnes,

571 F.2d 502 (9th Cir. 1978), cert. denied, 439 U.S. 831 (1978)

(state law regulating funding and disclosure requirements of ERISA

plans is preempted); and (3) establish rules for the calculation of

benefits, ¢.g., FMC Corp. yv. Holliday, 498 U.S. 52 (1990)

(interference with calculation of benefits through state

US. 500 (1981) Cent v. Raybessoe-Manhanan, Inc, 451

benefits against retirement benefits are preempted) are preempted.

See generally Airparts Company, Inc. v. Custom Benefit Services

of Austin, 28 F.3d 1062, 1064-65 (10th Cir. 1994); Iron Workers

Mid-South Pension Fund v. T:

12

as to funding, reporting, disclosure, vesting, and the like, and we

must go on to the next step of the preemption analysis.

C. If A State Law Claim May Be Brought Under ERISA

§502(a), Then Such Claim Is Necessarily Preempted By

ERISA § 514(a).

Where a state law claim can be brought under ERISA § 502(a)

and thus is completely preempted under that section, Metropolitan

Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987), it is necessarily

under ERISA § 514(a). See Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41 (1987) (state law claim for bad faith denial

of benefits preempted under ERISA § 514(a) because it would

displace exclusive remedies under ERISA § 502(a)); Ingersoll-Rand

Co. v. McClendon, 498 U.S. 133 (1990) (state law action

supplanted by ERISA § 510 as enforced via ERISA § 502(a) when

ERISA offers same remedies).

NELA suggests that a determination of whether a state law claim

may be brought under ERISA § 502(a) should be the second step

in the preemption analysis. If a state law claim may be brought

under ERISA § 502(a), then it is preempted, and no additional

preemption analysis is needed.

In this case, ERISA § 502(a) does not provide the State of New

York with a cause of action to collect a tax, and thus the

i Under this framework, the preemption analysis in /ngersoll-Rand and

Pilot Life would end here. There would be no need to rely on a more

general interpretation of ERISA § 514(a) as a basis for preemption.

of Washington Board of

Trade, 506 U.S. 125 (1992) (striking down District of Columbia

law that “specifically refers to welfare benefit plans regulated by

i

|

:

the consistently

unless Congress’ intent to do

so is clear. Travelers, 115 S. Ct. at 1676; Rice v. Santa Fe

Elevator Corp., supra (the historic police powers of the State [are]

persons.’” Slaughter-House , . 3%

(1872), quoting Thorpe v. & Burlington R. Co., 27 Vt.

140, 149 (1855). These include: regulation of hospital costs,

Travelers, 115 S. Ct. at 1681; Beat eh ce Np gg

other laws, laws occupational ‘a

° en bn a UT 356 (1976): laws abolishing

or modifying the common law doctrines of common employment

and assumption of the risk, Howard v. Illinois Central Railroad

Co., 207 U.S. 463 (1908); laws prescribing mandatory state

holidays, payment for jury duty or time spent voting, Day-Brite

Lighting, Inc. v. Missouri, 342 U.S. 421 (1952); legal malpractice

claims, Custer v. Sweeney, 89 F.3d 1156 (4th Cir. 1996); escheat

of abandoned property, Aetna Life Ins. Co. v. Borges, 869 F.2d

142 (2d Cir.), cert. denied, 493 U.S. 811 (1989); and enforcement

of commercial contracts under common law, Zuniga v. Blue Cross

& Blue Shield of Michigan, 52 F.3d 1395 (6th Cir. 1995). These

laws concern issues that the states have historically regulated. This

Court has made it clear that the states should be able to continue

regulate in these areas, unless there is clear Congressional intent to

the contrary. Travelers, 115 S. Ct. at 1676.

Accordingly, a state law in an area of traditional state regulation

will generally not be preempted unless it directly regulates an

ERISA-governed relationship or attempts to do through indirect

In this case, regulation of health care providers is a traditional

exercise of state authority, See Travelers, 115 S. Ct. at 1676.

Preemption analysis must continue with a presumption that the state

law is not preempted.

and therefore will be preempted. Morstein v. National Ins.

Services, Inc., 93 F.3d 715, 722-23 (11th Cir. 1996) (en banc);

Boyle v. Anderson, 68 F.3d 1093, 1103 (8th Cir. 1995), cert.

denied, 116 S.Ct. 1266 (1996); Lordmann Enterprises, Inc. v.

Equicor, Inc., 32 F.3d 1529, 1533-34 (11th Cir. 1994), cert.

denied, 116 S. Ct. 335 (1995); Travitz v. Northeast Dept. ILGWU

Health & Welfare Fund, 13 F.3d 704, 709 (3d Cir.), cert. denied,

114 S.Ct. 2165 (1994); General American Life Ins. Co. v.

Castonguay, 984 F.2d 1518, 1521-22 (9th Cir. 1993); Arkansas

Blue Cross & Blue Shield v. St. Mary’s Hospital, Inc., 947 F.2d

1341,1344-45 (8th Cir. 1991), cert. denied, 504 U.S. 957 (1992);

Memorial Hospital System v. Northbrook Life Ins. Co., 904 F.2d

ee

regulatory scheme, and are presumptively preempted. General

American Life Ins. Co. v. Castonguay, 984 F.2d at 1521-22.

governed relationship because that relationship concerns the employment

relationship, not a relationship growing out of benefits. Rokohl v. Texaco,

77 F.3d 126, 130 (Sth Cir. 1996); Forbus v. Sears Roebuck & Co., 30

F.3d 1402, 1406-07 (11th Cir. 1994), cert. denied, 115 S. Ct. 906 (1995).

of. Variety Corp. v. Howe, supra (where employer is held to be acting as

a fiduciary, state law claims would be preempted).

16

Conversely, if the state law does not regulate an ERISA-

governed relationship, it will not be preempted. For example, if

the state law only regulates one of the principal ERISA entities,

then there is no relationship, and there is no preemption. Hospice

of Metro Denver, Inc. v. Group Health Ins. of Okla., Inc., 944

F.2d 752, 753 (10th Cir. 1991) (a law affecting the relations

between an ERISA entity and an outside party is not preempted).

Quite simply, if there is no regulation of an ERISA-governed

relationship, more likely than not, there will be no significant effect

on the structure, administration, or the type of benefits provided by

the plan. Id.

Moreover, if the principal ERISA entities are not being regulated

in their ERISA capacities, then there is no ERISA-governed

relationship. Cf. John Hancock Mutual Life Ins. Co. v. Harris

Trust & Savings Bank, 510 U.S. at 106 (where an insurance

company is acting as an investment manager the insurance company

must comply with fiduciary standards). Thus, “lawsuits against

ERISA plans for run-of-the-mill state-law claims such as unpaid

rent, failure to pay creditors, or even torts committed by an ERISA

plan” are against the plan in a capacity other than as a plan — i.¢.,

as a commercial entity — and are not preempted. Mackey v. Lanier

Collections Agency & Service, 486 U.S. 825, 833 (1988). None of

these claims concern the plan acting as an ERISA plan — that is,

these claims do not impact plan administration or the payment of

benefits. Where the plan is acting like a commercial entity and not

like an ERISA plan, it should be treated the same as any

commercial entity. JId.; General American Life Ins. Co. v.

Castonguay, 984 F.2d at 1521-22.

This part of NELA’s suggested framework is consistent with the

Court's admonition in Shaw, because when a state law concerns a

third party and therefore does not regulate an ERISA-governed

relationship, the effect on employee benefit plans will be too

tenuous or peripheral to find that it relates to a plan. Moreover,

this prong is also consistent with Congress’ objective to avoid

multiplicity of regulation; obviously if a state law does not regulate

an ERISA-governed relationship, Se tee

regulation. Travelers, 115 S. Ct. at 1677-78. As a coroliary, this

17

analysis is consistent with the presumption against preemption of

state laws unless Ccngress' intent to do so is clear. Jd. Finally,

adoption of this part of NELA’s suggested analysis will not require

overturning any precedent; application of this test to past ERISA

Se eee

isions.

Cf. Akers v. Palme;, 71 F.3d 226 (6th Cir. 1995), cert. denied, 116

S. Ct. 2523 (1996) (decision to terminate plan is made in corporate

and there is no ERISA-governed relationship.

Travelers, 115 S. Ct. at 1680. Claims for medical malpractice

against doctors would not be preempted because the doctor is not

one of the principal ERISA entities. Rice v. Panchal, 65 F.3d 637

agent (and agency) and the employee is not regulated by ERISA.

Morstein v. National Ins. Services, Inc., 93 F.3d 715, 722-23 (11th

no ERISA-governed relationship is involved; the service provider

is a non-fiduciary. Custer v. Sweeney, 89 F.3d 1156 (4th Cir.

1996). Mere inclusion of a request for fringe benefits to fully

compensate an employee for a wrongful discharge, otherwise

unconnected to an benefit plan, would not be preempted

Forbus v. Sears Roebuck & Co., 30 F.3d 1402,

1406-07 (11th Cir. 1994), cert. denied, 115 S. Ct. 906 (1995).

18

In Boyle v. Anderson, 68 F.3d 1093, the court reviewed a state

statute similar to the one at issue in this case. The court found that

the MinnesotaCare provider tax, permitting a health care provider

to transfer the expense of a 2% provider tax to third party health

care providers, did not change the structure or terms of the plan.

Nor did it result in any alternation in the power or authority among

factors, among others, warranted a finding that the tax was not

preempted.

Accordingly, NELA suggests that this prong of ERISA

preemption analysis should be an inquiry as to whether the state law

regulates an ERISA-governed relationship.

In this instance, the New York state law does not regulate any

ERISA-governed relationship. It does not regulate the relationship

between the plan and its participants. It does not regulate the

i A number of courts of appeals have formulated similar tests focusing

on “principal ERISA entities” -- plan, participant, fiduciary, and

employer. Morstein v. National Ins. Services, Inc., 93 F .34 715, 722-23

(11th Cir. 1996) (en banc); Boyle v. Anderson, 68 F.3d 1093, 1103 (8th

Cir. 1995), cert. denied, 116 S.Ct. 1266 (1996); Lordmann Enterprises,

Inc. v. Equicor, Inc., 32 F.3d 1529, 1533-34 (llth Cir. 1994), cert

denied, 116 S. Ct. 335 (1995); Travitz v. Northeast Dept. ILGWU Health

& Welfare Fund, 13 F.3d 704, 709 (3d Cir.), cert. denied, 114 S.Ct. 2165

(1994); General American Life Ins. Co. v. Castonguay, 984 F.2d 1518,

1521-22 (9th Cir. 1993); Arkansas Blue Cross & Blue Shield v. St. Mary's

Hospital, Inc., 947 F.2d 1341,1344-45 (8th Cir. 1991), cert. denied, 504

U.S. 957 (1992); Memorial Hospital System v. Northbrook Life Ins. Co.,

904 F.2d 236, 249 (Sth Cir. 1990); Sommers Drug Stores Co. Employee

Profit Sharing Trust v. Corrigan Enterprises, Inc., 793 F.2d 1456, 1467-

68 (Sth Cir. 1986), cert. denied, 479 US 1034 (1987). While these tests

are helpful in clarifying that cases involving third-parties are not

preempted, they fail to recognize that employers and employees “wear

more than one hat,” that is, the employer has a relationship with the

employee outside of its possible fiduciary role, which relationship has been

regulated historically by the states. E.g., DeCanas v. Bica, 424 U.S. 351,

356 (1976).

19

relationship between the plan and the trustees. It does not regulate

the relationship between the plan and the employer. It does not

New York’s tax does not affect a participant’s benefit eligibility or

the calculation of benefits. Instead, it only regulates the plan in its

commercial capacity as a health care provider. See Travelers, 115

S. Ct. at 1680. Consequently, under this prong of the analysis,

New York state’s law is not preempted.

G. If A State Law Accomplishes Through A Severe Indirect

Economic Effect What It Could Not Do Directly, It Is

Preempted.

As the final prong of preemption analysis, an inquiry must be

made to ensure that the state is not accomplishing indirectly what

it cannot do directly.

A sate law taxing, or otherwise indirectly attempting through

economics to effect, an ERISA plan generally will not be

preempted because the economic effect will be so indirect that there

will not be the requisite connection to an ERISA plan. Travelers,

115 S. Ct. at 1680. However, there may be instances where “a

state law . . . produce[s] such acute, albeit indirect, economic

effects . . to force an ERISA plan to adopt a certain scheme of

substantive coverage” or administration that the state law will be

preempted. Travelers, 115 S. Ct. at 1683.

Thus, where the state law’s indirect economic effect is so

significant that it demonstrably and of necessity causes the plan to

choose certain types of benefits; to change its terms; to create

specific requirements as to funding, reporting and disclosure,

vesting, and the like; or to establish rules for the calculation of

benefits; or if the effect is to regulate an ERISA-governed

relationship, it must be preempted. See I], B, and Il, F, supra.

In this case, the New York state law’s economic effect on

ERISA plans is negligible, and thus is not preempted.

, an ERISA claim under

ERISA § 502(a), does not reference an ERISA plan, and is a

law in an area of traditional state regulation that does not directly

regulate an ERISA-governed relationship and does not produce an

acute demonstrable indirect economic effect on an ERISA plan.

Thus, the state law does not "relate to an employee benefit plan",

and it is not preempted under ERISA § 514(a), 29 U.S.C.

§ 1144(a).

CONCLUSION

For the foregoing reasons, NELA urges the Court to reverse the

decision of the Second Circuit Court of Appeals.

Respectfully submitted,

Mary Ellen Signorille

(Counsel of Record)