Petition for Writ of Certiorari — PIE Nationwide, Inc. v. Perry

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In the

Supreme Court of the United States

OCTOBER TERM, 1989

_ P*I*E NATIONWIDE, INC.,

Petitioner,

Vv.

BOBBY WAYNE PERRY, PHILIP ANTHONY EDDIE

ERNEST CORDELL JONES, JAMES A. MATHIS AND

GARY R. HYDER,

Respondents.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Peter Reed Corbin

John E. Duvall

CORBIN, DICKINSON & DUVALL

731 May Street

Post Office Box 41566

Jacksonville, Florida 32204

(904) 356-8073

Thomas M. Donnell, Jr.

STEWART, ESTES & DONNELL

Third National Bank Building

14th Floor

Nashville, Tennessee 37219-2095

(615) 244-6538

Counsel for Petitioner,

P*I*E Nationwide, Inc.

A B Letter Service, Inc., 327 Chartres St., New Orleans, La. (504) 581-5555

QUESTIONS PRESENTED FOR REVIEW

1. Whether plaintiffs’ state law claims for fraud,

cerning the procurement of their consent to participate in

an employee stock ownership plan (“‘ESOP’’) regulated by

ERISA are sufficiently related to the plan itself to be

preempted by Section 514(a) of ERISA, 29 U.S.C.A. Sec-

tion 1144(a), when all plaintiffs are participants in the plan.

2. Whether the preemption provision set forth in Sec-

tion 514(a) of ERISA, (and hence ERISA’s disclosure re-

quirements and fiduciary responsibilities), applies during

the formation and offering of an ERISA employee welfare

benefit plan.

PARTIES TO PROCEEDING IN COURT BELOW

The petitioner in this proceeding is P*I*E Nation-

wide, Inc., (hereinafter ‘“‘P*I*E’’). P*I*E is a Florida cor-

poration qualified to do and doing business in the State of

Tennessee. P*I*E was the defendant in the district court

below. The respondents are Bobby Wayne Perry, Philip

Anthony Eddie, Ernest Cordell Jones, James A. Mathis,

and Gary R. Hyder, plaintiffs below, all of whom are past

or present employees of P*I*E Nationwide, Inc. at its

freight terminal in Nashville, Tennessee.

TABLE OF CONTENTS

Page

Questions Presented for Review..................... i

Parties to Proceedings in the Court Below ......... ~

RIE CN TEA ELA iii

ee wc neces saenucs Gan iv

ee ial a 5 ap sia we eee ens 0s wenn 1

EE Se a 2

a kel dk a aa a dcldle 2

EN a ee 4

Reasons the Writ Should be Granted................ 8

aw we sawensecnens 16

SESE Se ola eg 17

Appendix:

Appendix A - Opinion of the Court of Appeals

entered on April 10, 1989 ...................... A-1

Appendix B - Report and Recommendation of the

Magistrate entered on November 25, 1989... .. . A156

Appendix C - Order and Memorandum of the

District Court entered on August 12, 1987 ...... A-30

Appendix D - Order of the District Court entered on

September 17, 1967 ......................005. A-43

Appendix E - Order of the Court of Appeals entered

TE ee EO ER a A-45

= iv

TABLE OF AUTHORITIES

Cases Page

Anderson v. John Morrell & Co., 830

IN oii dintd in a Ninn in ces aren vate 10

Avco Corp. v. Acro Lodge No. 735,

ee 9

Cefalu v. B.F. Goodrich Co.,

871 F.2d 1200 (6th Cir. 1969).................... 11

Dependahl v. Falstaff Brewing Cerp.,

653 F.2d 1208 (8th Cir.), cert. denied, 454 U.S. 968

NS a ee aw a a 10,15

Farlow v. Union Central Life Insurance Co.,

874 F.2d 791 (11th Cir. 1988) ................. 14,15

Franchise Tax Board of the State of California v.

Construction Laborers Vacation Trust,

ee er Sa kk owe so SBR N EWS 9

MacKey v. Lanier Collection Agency & Service,

ee ED Gos. 2a). Lidesu Bai are ws se 8

Metropolitan Life Insurance Co. v. Massachusetts,

CR aR 9

Nachwalter v. Christie, 805

nc cae ewes seewees 13

Perry v. P*I*E Nationwide, Inc.,

ee I, I. oe es oe eee esc ennee 1

Phillips v. Amoco Oil Co.,

799 F.2d 1646 (11th Cir. 1986) ................ 13,14

Pilot Life Insurance Co. v. Dedeaux,

ES 8,9,10

Shaw v. Delta Air Lines, Inc.,

BE Tey 8,9,10

Straub v. Western Union Telegraph Co.,

851 F.2d 1963 (10th Cir. 19608 ................... 12

Statutes

26 U.S.C.

28 U.S.C.

29 U.S.C.

Page

Section 4975(e)(7) )1989) .................. 5

Section 1254(1) (1969) .................... 2

Section 1001 et seg. (1985) ................ 2

Section 1001(a) (1985) .................. 3,11

Section 1107(d) (6) (1985)............... 3,4-5

ee 3

Section 1144(a) (1985) ................ 2,4,11

I ns kau c eee eesaees 2

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1989

P*I*E NATIONWIDE, INC,

Petitioner,

BOBBY WAYNE PERRY, PHILIP ANTHONY EDDIE,

ERNEST CORDELL JONES, JAMES A. MATHIS,

AND GARY R. HYDER,

Respondents.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

_ The Petitoner, P*I*E Nationwide, Inc., respectfully

prays that a Writ of Certiorari issue to review the Opinion

and Judgment of the United States Court of Appeals for

the Sixth Circuit entered in this action on April 10, 1989.

OPINIONS BELOW

The opinion of the Court of Appeals is reported as

Perry v. P*I*E Nationwide, Inc., at 872 F.2d 157 (6th Cir.

1989), and is attached hereto as Appendix A. The Report

and Recommendation of the Magistrate entered on

November 25, 1986, and the Orders and Judgment of the

United States District Court for the Middle District of Ten-

nessee, Nashville Division, which were not officially

published, are attached hereto as Appendix B. C, and D,

respectively.

JURISDICTION

The Opinion and Judgment of the United States

Court of Appeals for the Sixth Circuit was entered on April

10, 1989. A timely Petition for Rehearing filed by P*I*E

was denied on May 25, 1989 (see Appendix E). The jurisdic-

tion of this Court is invoked pursuant to 28 U.S.C. Section

1254(1) (1982). On June 1, 1989, the Sixth Circuit granted

P*I*E’s Motion to Stay the Mandate in this action for six-

ty (60) days pending this Petition for Writ of Certiorari.

STATUTES INVOLVED

This case involves several provisions of the

Employee Retirement Income Security Act of 1974

(“ERISA”), 29 U.S.C. Section 1001 et seg. (1985). Prin-

cipally concerned is Section 514(a) of ERISA, 29 U.S.C.

Section 1144(a), which in relevant part provides:

Except as provided in subsection (b) of this sec-

tion, the provisions of this title and title [TV shall

supersede any and all State laws insofar as they

may now or hereafter relate to any employee

benefit plan described in section 4(a) and not ex-

empt under section 4(b).

Section 514(c), 29 U.S.C. Section 1144(c), states in

relevant part:

For purposes of this section:

(1) The term ‘“‘State law”’ includes all laws, deci-

sions, rules, regulations, or other State action

having the effect of law of any State.

(2) The term ‘‘State’’ includes a state .. . which

purports to regulate, directly or indirectly, the

terms and conditions of employee benefit plans

covered by this title.

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

provides:

A civil action may be brought by a participant or

beneficiary . . . to recover benefits, . . . to enforce

his rights under the terms of the plan, or to clarify

his rights to future benefits under the terms of

the plan; . . . to enjoin any act or practice which

violates any provision of the plan, or to obtain

other appropriate equitable relief to redress such

violations or to enforce any provisions of this title

or the terms of the plan.

In Section 2(a) of ERISA, 29 U.S.C. Section 1001(a),

which articulates the Congressional findings and declara-

tion of policy concerning employee benefit plans, it is

stated:

The Congress finds . . . that the operational scope

and economic impact of such plans is increasingly

interstate; . . . that disclosure be made and

safeguards be provided with respect to the

establishment, operation, and administration of

such plans; . . . to provide for the free flow of com-

merce, that minimum standards be provided

assuring the equitable character of such plans

and their financial soundness.

Section 407(d6) of ERISA, 29 U.S.C. Secton

1107(dX6), provides:

The term “employee stock ownership plan’

means an individual account plan:

(a) which is a stock bonus plan which is

qualified, or a stock bonus plan and money

purchase plan both of which are qualified,

under Section 401 of the Internal Revenue

Code of 1954, and which is designed to invest

primarily in qualifying employee securities,

and

(b) which meets such other requirements as the

Secretary of the Treasury may prescribe by

regulation.

STATEMENT OF THE CASE

This action was brought in 1986 by five plaintiffs

based upon various Tennessee common law claims of alleg-

ed fraudulent inducement in obtaining their participation

in an ERISA employee welfare benefit plan. P*I*E’s mo-

tion to dismiss was based upon the defense that the Ten-

nessee claims were preempted by Section 514(a) of the

Employee Retirement Income Security Act of 1974 (herein

“ERISA”), 29 U.S.C. Section 1144(a) (1985).

Plaintiffs sued P*I*E in the district court at

Nashville based upon diversity of citizenship because peti-

tioner is a Florida corporation which does business within

the State of Tennessee. The complaint asserted that P*I*E

wrongfully induced plaintiffs to participate in an Employee

Stock Investment Plan (hereinafter the ‘‘SIP’’), contrary to

Tennessee state common law. Plaintiffs also alleged that

their participation in the ERISA plan was obtained

through fraud, coercion, misrepresentation, promissory

estoppel, lack of consideration, and breach of fiduciary du-

ty. Plaintiffs requested rescission or damages.

P*I*E sought to dismiss because the plan was an

employee stock ownership plan (‘“‘ESOP’’) as contemplated

under Section 407(d)(6) of ERISA, 29 U.S.C. Sec-

tion 1107(d)(6), and the Internal Revenue Code, 29 U.S.C.

Section 4975(e)(7). As an ESOP, the SIP is regulated by the

terms of ERISA and the Internal Revenue Code. This

regulation extends to employer conduct during the offering

of participation in the welfare benefit plan.

For the purposes of this appeal, the factual

background of this controversy is essentially undisputed.!

P*I*E is a long distance motor carrier operating

throughout the United States and in parts of Canada. In

the fall of 1985, when the SIP came into being, P*I*E had

approximately 11,000 employees and maintained over 300

truck terminals. It experienced over $90,000,000 in

operating losses during 1984 and the first half of 1985.

P*I*E was in “dire economic straits.’’ In an effort to im-

prove its weak financial condition, P*I*E offered the SIP

which was “designed to enable employees to acquire stock

ownership in the company, and to provide employees who

participated with the opportunity to accumulate capital for

their future economic security.’’ The SIP also substantially

reduced P*I*E’s operating expenses. The SIP was “‘ex-

pressly subject’”’ to ERISA. Defendant issued a lengthy

prospectus which was filed with the Securities and Ex-

change Commission. All eligible employees were given a fif-

teen page plan outline which summarized the ‘material

contained [in the aforesaid SIP] prospectus.”’2 To par-

ticipate in the SIP, an employee had to agree to accept an

“irrevocable 15% reduction in wages or salary from the

1 This statement of facts is contained in the Magistrate's report. It was

in the briefs of both parties in the appeal to the Sixth Circuit and is con-

tained in the opinion appealed from.

2 This outline or summary was “qualified in its entirety by reference to

the detailed information contained in such prospectus.”

start of the program through December 31, 1990.’

Plaintiffs were employed by P*I*E at its Nashville,

Tennessee freight terminal. Between September and

November of 1985, each voluntarily signed an agreement

to participate in the SIP, which contained the following

provision:

I understand and agree that participation in the

Compensation Program means that my wages or

salary (as now or hereafter in effect) will be reduc-

ed by 15 percent beginning on the date the Com-

pensation Program becomes effective, continuing

through December 31, 1990.

I acknowledge receipt of a Prospectus relating to

the offering of Ryder/P*I*E Common Stock

under the Stock Investment Plan and the Com-

pensation Program.

I elect to participate in the Compensation Pro-

gram and in the Stock Investment Plan of

Ryder/P*I*E Nationwide, Inc.4

P*I*E was sold to Maxitron, Inc. on January 1,

1986, just a few months after plaintiffs elected to join the

SIP. Approximately 85 percent of eligible employees had

similarly elected to join the SIP, which became effective

3 Certain collective bargaining unit employees, however, might par-

ticipate at a 5 percent reduction. This 15-5 percent distinction is not

challenged in the instant litigation.

4 Effective January 1, 1986, Ryder/P*I*E Nationwide, Inc. changed its

name to P*I*E Nationwide, Inc.

December 31, 1985.5 ““The wage reduction could not be

revoked or changed during participation,’’ and was ’’in-

tended to be irrevocable.’ Plaintiffs claim they were told

by P*I*E representatives that the company would close

because of its poor financial condition if employees did not

participate in the SIP and that “[djefendant corporation

under no circumstances would be sold.’”6 The SIP,

however, contained one provision indicating that no

representations, beyond those in the prospectus itself, were

authorized, and another provision specifically referring to

a possible sale of P*I*E stock. Plaintiffs concede that the

SIP contained participation, funding, and vesting re

quirements ‘‘as provided in ERISA,” and the district court

found the SIP qualified under ERISA. Plaintiffs did not

seek to exhaust their administrative remedies under the

SIP before bringing suit in the district court.

The district court denied P*I*E’s motion to dismiss

on ERISA preemption grounds. The Sixth Circuit reversed

in part and affirmed in part the district court, finding that

the claims of breach of fiduciary duty and lack of considera-

tion were preempted, while the claims of fraud,

misrepresentation and promissory estoppel were nct. The

Sixth Circuit panel reasoned that preemption should only

apply if Congress has provided a remedy for the wrong or

wrongs asserted. Since it was uncertain that the remedies

the plaintiffs sought—rescission and refund of wage

reductions—were available to them under ERISA, the

Court of Appeals found that ERISA did not preempt those

claims.

5 The SIP provided the plan was conditioned upon at least 70 percent

of the company’s 11,000 employees electing to participate.

6 Plaintiffs’ affidavits indicated only that “upper-level management

representatives told them that the company was not for sale’’ because

of its bad financial conditions.

REASONS THE WRIT SHOULD BE GRANTED

1. THE DECISION BELOW IS IN DIRECT CONFLICT

WITH THIS COURT‘S DECISIONS iN SHAW V.

DELTA AIR LINES, iNC., 463 U.S. 85 (1983) AND

PILOT LIFE INSURANCE CO. V. DEDEAUX, 481 U.S.

41 (1987), THAT ERISA PREEMPTS ANY STATE LAW

CLAIM THAT “RELATES TO ” AN ERISA PLAN.

It is clear that this Court has given ERISA an ex-

tremely broad construction with respect to its preemptive

effect on state law and state actions that “relate to’’ an

employee benefit plan. Shaw v. Delta Air Lines, Inc., 463

U.S. 85 (1983); MacKey v. Lanier Collection Agency & Ser

vice, Inc., 108 S. Ct. 2182 (1988); Pilot Life Insurance Co.

v. Dedeaux, 481 U.S. 41 (1987). The circuit courts of appeal,

however, have diverged in their application of ERISA’s

preemptive effect to state law-based claims concerning the

circumstances surrounding decisions to participate in such

plans.

In the instant appeal, the Sixth Circuit concluded

that ERISA preemption is to be determined by deciding

whether or not ERISA provides the specific sort of

remedies sought by the plaintiffs through their state law-

based claim. This approach is directly contrary to this

Court’s finding in Shaw v. Delta Air Lines, Inc., supra, that

the preemptive sweep of ERISA was not limited to “‘state

laws as specifically designed to affect employee benefit

plans,’’ or to “‘state laws dealing with the subject matters

covered by ERISA”’. 463 U.S. at 98. Indeed, if ERISA

preempted only state laws which provided remedies

parallel to those in ERISA, this Court would never have

found the state law at issue in Shaw to have preempted. In

Shaw, the plaintiffs’ claim for pregnancy benefits under

New

York’s Human Rights Law was found to “relate to’’ an

employee benefit plan within the meaning of Section 514(a).

Had this Court applied the Sixth Circuit panel’s ‘‘adequate

remedy’”’ test, it could never have reached the conclusion

reached in Shaw, as ERISA has no remedial provision even

remotely addressing the issue of discrimination in benefits

on account of pregnancy.

Shaw makes clear the the preemption clause cannot

be interpreted to preempt only state laws dealing with the

subject matters covered by ERISA. Instead, the clause’s

preemptive scope is ‘‘as broad as its language.” Jd. at 98.

The clause extends to any attempt to relate state law either

directly or indirectly to an employee benefit plan. Jd. at

99-100.

In Pilot Life Insurance Co. v. Dedeaux, supra, this

Court had occasion to again direct its attention to the

“relate to”’ phrase. According to the Court, the phrase

“‘was given its broad common-sense meaning such that a

state law relate[s] to a benefit plan in the normal sense of

the phrase, if it has a connection with or reference to such

a plan.” 481 U.S. at 47, (quoting Metropolitan Life In-

surance Co. v. Massachusetts, 471 U.S. 724, 739 (1984)).

Pilot Life makes clear that the ERISA civil enforcement

provisions have a complete preemptive effect. In such a

situation, the preemptive force is ‘‘so powerful as to

displace entirely any state cause of action... .”’ Franchise

Tax Board of the State of California v. Construction

Laborers Vacation Trust, 463 U.S. 1, 23 (1983) (referring to

Avco Corp. v. Acro Lodge No. 735, 390 U.S. 557, (1968), in

which the Court affirmed the controlling effect federal law

has over any action to enforce an agreement within the

scope of Section 301 of the Labor Management Relations

Act). Pilot Life reiterates this Court’s pronouncement that

ERISA preemption is to be applied broadly, to preempt

any claim that “‘relates to”’ an employee benefit plan.

Rather than recognizing these more recent pro-

nouncements concerning ERISA’s preemptive scope,

however, the court below relied upon a more dated Eighth

Circuit decision, Dependahl v. Falstaff Brewing Corp., 653

F.2d 1208 (8th Cir.), cert. denied, 454 U.S. 968 (1981), to

wrongly conclude that the remedy sought determines

whether or not ERISA preempts attempts to relate state

law to an employee benefit plan. In Dependahi (where

ironically ERISA was found to preempt a state law claim),

it was held that ERISA only preempts state law causes of

action when Congress has specifically provided a remedy

for the alleged wrong. Jd. at 1215. Decided years prior to

Shaw and Pilot Life, Dependahil represents a constricted

view of ERISA’s preemptive scope and clearly conflicts

with this Court’s more recent articulations of Congress’

sweeping intent behind including a preemption clause

within ERISA. Compare Anderson v. John Morrell & Co.,

830 F.2d 872 (8th Cir. 1987), (where a state law-based at-

tempt to orally modify the terms of an ERISA employee

benefit plan was found to be preempted). Allowed to stand

unchallenged, the decision and holding of the court below

will create unnecessary confusion over this important

federal issue and will create uncertainty over the extent of

ERISA’s preemptive sweep. It wili create a new loophole in

the preemption clause which this Court had closed by its

decisions in Shaw and Pilot Life and through which

creative plaintiffs will drive the very myriad of state law

based claims previously foreclosed by this Court’s more re-

cent holdings.

Perhaps even more critical is the fact that if the

Sixth Circuit’s decision is allowed to stand, ERISA’s

preemptive scope would not extend to the offering of

_employee benefit plans to employees by employers engaged

in interstate commerce. In its statement of findings and

declarations of policy concerning employee plans, Congress

expressly stated that it intended to create federal

safeguards with respect to the “‘establishment”’ of such

plans. 29 U.S.C. Section 1001(a). The Sixth Circuit would

remove from exclusive federal regulation the offering of

such plans, contrary to Congress’ stated intent that

employee benefit plan establishment is to be regulated by

ERISA and not state law.

In summary, the decision below is in conflict with the

applicabie decisions of this Court. If allowed to stand,

Shaw and Pilot Life will be limited far beyond their intent.

Il. THE DECISION BELOW FOLLOWING THE

EIGHTH CIRCUIT, IS IN DIRECT CONFLICT WITH

THE FIFTH, TENTH, AND ELEVENTH CIRCUITS.

In Cefalu v. B.F. Goodrich Co., 871 F.2d 1290 (5th

Cir. 1989), the United States Court of Appeals for the Fifth

Circuit determined that a state law breach of contract ac-

tion to recover additional pension benefits is preempted

under the provisions of 29 U.S.C. Section 1144(a):

It is clear that ERISA preempts state law causes

of action as they relate to employee benefit plans.

This is true even though the cause of action arises

under a “general” state law which in and of itself

has no impact on employee benefit plans.

Id. at 1292 n.65.

Cefalu contended in his suit that representatives of

Goodrich orally assured him that his retirement benefits as

a franchisee would be identical to those of individuals who

had accepted employment with Goodrich. Relying upon

those representations, Cefalu contended that he purchased

a franchise, instead of electing to work for Goodrich. Jd. at

1292. After purchasing the franchise, Cefalu alleged that

Goodrich advised him that his benefits would not be the

same as those who chose to work for Goodrich as

employees. Jd. Suit was then filed in state court by Cefalu

alleging breach of contract under Louisiana law. Id.

Goodrich denied that any oral representations or

assurances were given to Cefalu to induce him to purchase

the franchise. The franchise contained a merger clause and

a statement that the agreement had been entered into only

upon the inducements contained within the document, and

no others. Id.

In affirming the district court’s grant of summary

judgment to Goodrich on ERISA preemption grounds, the

Fifth Circuit noted:

[T]he question whether a certain state action is

preempted by federal law is one of congressional

intent.

Id. at 1293.

In light of the decision of the Court of Appeals for

the Sixth Circuit in the instant appeal, a conflict exists

among the circuits as to the important federal question of

whether or not oral misrepresentations concerning an

ERISA employee benefit plan are preempted.

The decision below is also in direct conflict with the

decision of the United States Court of Appeals for the

Tenth Circuit in Straub v. Western Union Telegreph Co.,

851 F.2d 1262 (10th Cir. 1988). There, an employee filed a

negligence and breach of contract suit because of his

employer’s failure to grant him an increase in pension

benefits. Straub also contended that his employer

misrepresented how his pension benefits would be affected

by a transfer of his employment to a subsidiary company

of his employer. Jd. at 1263. The Tenth Circuit found

ERISA preempted the state law claims:

With the weight of Supreme Court and appellate

opinion to the contrary, Straub’s argument that

ERISA cannot preempt claims that are primarily

contractural in nature must fail.

Id. at 1264.

The Tenth Circuit expressly held that no liability ex-

ists under ERISA for purported oral modification of the

terms of an employee benefit plan. Jd.at 1265 (relying upon

Nachwalter v. Christie, 805 F.2d 956, 959-61 (11th Cir.

1986)). In Nachwalter, the Eleventh Circuit concluded that

the requirement that ERISA plans be maintained in

writing precludes claims of oral modification to the plan

and that state common law doctrines of estoppel cannot be

used to alter that result. Id.

According to the decision below, the Sixth Circuit

panel would allow oral modification of the SIP or a cause

of action under state law for the oral modification of an

ERISA welfare benefit plan. This modification would occur

through giving effect to the alleged oral misrepresenta-

tions of the plan by company officials to the plaintiffs at

the time the plan was offered to them.

The decision below is in direct conflict with the deci-

sion of the United States Court of Appeals for the Eleventh

Circuit in Phillips v. Amoco Oil Co., 799 F.2d 1464 (11th

Cir. 1986), cert. denied, 481 U.S. 1016 (1987). The difference

in the potential remedies available under state and federal

law was specifically addressed recently by the Eleventh

Circuit in Phillips, a decision which the panel below ex-

pressly declined to follow. In that decision, the Eleventh

Circuit concluded:

The employees protest that to hold that ERISA

preempts this fraud claim, while also holding that

ERISA does not prohibit the wrong the

employees feel they have suffered, leaves a ‘’gap’’

in the law. This is exactly the result that obtains

when Congress determines that federal law

should govern a broad area to the exclusion of

state regulation and chooses not to prohibit ac-

tions formally prohibited by state law. It is the

very conflict between the federal scheme and

state law that is to be avoided through preemp-

tion. To argue that Congress has created a ‘’gap’’

in the law does not undermine the reasoning on

which a finding of preemption is based.

Id. at 1470.

In Phillips, former employees of Amoco Oil Company

brought an action based on a claim of breach of contract,

state common law fraud, and ERISA violations. Jd at

1466. They claimed that Amoco fraudulently assured them

of lifetime employment even while negotiating the sale of

the business to another company. They also contended that

the fraudulent concealment of the effect of the sale on

credit for years of service toward retirement benefits was

not preempted by ERISA. Id. the Eleventh Circuit found

both claims to be preempted. Jd. at 1473.

The decision below is also in direct conflict with the

very recent decision of The United States Court of Appeals

for the Eleventh Circuit in Farlow v. Union Central Life In-

surance Co., 874 F.2d 791 (11th Cir. 1989). In Farlow, the

Eleventh Circuit affirmed a district court’s determination

that state law claims for, inter alia, fraudulent misrepresen-

tation arising out of the sale of an insurance policy were

preempted by ERISA. Farlow alleged that a Central Life

employee fraudulently misrepresented the terms of a group

health and employee term life insurance plan to induce him

to purchase the plan. Jd. at 793. The district court and

court of appeals found the scope of ERISA preemption suf-

ficiently broad to encompass the misrepresentation claim.

Id. In so holding, the Eleventh Circuit noted:

We have held that ERISA preempts state laws

even if the laws do not expressly concern

employee benefit plans but rather amount only to

indirect regulation of such plans.

Id. at 794 (citations omitted).

Under the decision below, the Sixth Circuit panel

would allow Tennessee State law to indirectly regulate the

SIP, contrary to the holding of the Eleventh Circuit ia

Farlow.

In summary, the Sixth and Eighth Circuits hold that

ERISA only preempts state law based claims for which

there is an “available remedy” under ERISA. The Fifth,

Tenth, and Eleventh Circuits on the other hand hold that

ERISA preempts all claims which attempt to relate state

laws to ERISA emplceyee benefit plans. A split exists

among the circuits as to an important federal question.

Moreover, the decision of the Court of Appeals below and

of the Eighth Circuit in Dependahl, departs from the clear-

ly established precedents of this Court.

CONCLUSION

WHEREFORE, for the foregoing reasons, Petitioner

P*I*E Nationwide, Inc. respectfully prays that a Writ of

Certiorari issue to review the opinion of the United States

Court of Appeals for the Sixth Circuit in order to resolve a

conflict among the circuits as to this important federal

question.

Respectfully submitted,

CORBIN, DICKINSON & DUVALL

731 May Street

Post Office Bos 41566

Jacksonville, Florida 32204

(904) 356-8073

By:

Peter Reed Corbin

By:

John E. Duvall

STEWART, ESTES & DONNELL

Third National Bank Building

14th Floor

Nashville, Tennessee 37219-2095

(615) 244-6538

By:

Attorneys for Petitioner,

P*I*E Nationwide, Inc.

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that three (3) copies of the

foregoing Petition for Writ of Certiorari have been served

this 21st day of August, 1989 by first class United States

mail upon the following:

John D. Schwalb, Esquire

BREWER, KRAUSE & BROOKS

Suite 2600, The Tower

611 Commerce Street

Nashville, Tennessee 37203

R. Stephen Waldron, Esquire

202 Wesst Main Street

Murfreesboro, Tennessee 37130

Attorneys for all Respondents

Attorney

A-1

APPENDIX A

Bobby Wayne PERRY, Philip Anthony

Eddie, Ernest Cordell Jones, James A.

Mathis, and Gary R. Hyder, Plaintiffs-

Appellees,

P*I*E NATIONWIDE, INC.,

Defendant-Appellant.

No. 87-6321

United States Court of Appeals,

Sixth Circuit.

Argued Sept. 26, 1988.

Decided April 10, 1989.

Employees brought action against employer for

fraudulent inducement in obtaining participation in

employee benefit plan, and sought rescission of plan and

restitution of agreed wage reduction. The United States

District court for the Middle District of Tennessee,

Thomas A. Higgins, J., denied employer’s motion to

dismiss, and employer appealed. The Court of Appeals,

Wellford, Circuit Judge, held that: (1) employees’ claims for

breach of fiduciary duty and lack of consideration for pay

cut taken to participate in benefit plan were preempted by

Employee Retirement Income Security Act, and (2)

employees’ claims relating to fraud, misrepresentation,

coercion, and promissory estoppel with respect to obtain-

ing their agreement to participate in benefit plan and ac-

Affirmed in part; reversed in part.

ceptance of irrevocable pay cut were not preempted by Act.

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David A. Nelson, Circuit Judge, filed opinion concur-

ring in part and dissenting in part.

Peter Reed Corbin (argued), Corbin & Dickinson,

John E. Duvall, Jacksonville, Fla., Thomas M. Donnell, Jr.,

Stewart Estes & Donnell, Nashville, Tenn., for defendant-

appellant.

R. Steven Waldron, R. Steven Waldron &

Associates, Murfreesboro, Tenn., John D. Schwalb

(argued), Brewer, Krause, & Brooks, Nashville, Tenn., for

plaintiffs-appellees.

Before WELLFORD and NELSON, Circuit Judges,

and McQUADE*, District Judge.

WELLFORD, Circuit Judge.

This case comes to us on appeal from the district

court’s denial of defendant P*I*E Nationwide, Inc.’s

(P*I*E) motion to dismiss this action of five plaintiffs bas-

ed on a common law claim of alleged fraudulent inducement

in obtaining their participation in an employees’ benefit

plant. P*I*E’s motion was based on the defense that the

state law claims were preempted by reason of 29 U.S.C. §

1144(a), § 514(a) of ERISA. Plaintiffs sued defendant in the

district court at Nashville based on diversity of citizenship

because defendant was a Florida corporation qualified to

do business in Tennessee. The complaint asserted that

defendant wrongfully induced plaintiffs to participate in an

employee stock investment plan (SIP). Plaintiffs also alleg-

ed that their participation was obtained through fraud,

coercion, misrepresentation, promissory estoppel, lack of

* The Honorable Richard B. McQuade, Jr., United States District Judge

for the Northern District of Ohio, sitting by designation.

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consideration, and breach of fiduciary duty. Plaintiffs re-

quested rescission or damages. P*I*E sought to dismiss

because the plan was an employee stock ownership plan

(ESOP) as contemplated under § 407(d)(6) of ERISA, 29

U.S.C. § 1107(d)(6),1 and the Internal Revenue Code, 26

U.S.C. § 4975(e)(7).

The factual background of this controversy is essen-

tially undisputed. P*I*E is a long-distance motor carrier

operating throughout the United States and in part of

Canada. [n the fall of 1985, when the SIP came into being,

P*I*E had approximately 11,000 employees and maintain-

ed over 300 truck terminals. It had experienced over

$90,000,000 in operating losses during 1984 and the first

half of 1985. The company was, to say the least, in ‘dire

economic straits.”” In an effort to improve its weak finan-

cial condition, P*I*E offered the SIP, which was ‘‘designed

to enable employees to acquire stock ownership in the Com-

pany, and to provide employees who participated with the

opportunity to accumulate capital for their future

economic security.’’ The SIP was ‘“‘expressly subject”’ to

ERISA.? Defendant issued a lengthly prospectus which

was filed with the Securities and Exchange Commission.

1 This appeal primarily pertains to the preemption clause in 29 U.S.C.

§ 1144:

Except as provided in subsection (b) of this section, the pro-

visions of this subchapter and subchapter III of this chapter

shall supercede any and all State laws insofar as they may

now or hereafter relate to any employce benefit plan describ-

ed in section 1003(a) of this title and not excempt under sec-

tion 1003(b) of this title.

29 U.S.C. § 1144(a).

2 This statement of facts is contained in the magistrate’s report and in

the briefs of both parties.

Se: A-4

All eligible employees were given a fifteen-page plan

outline which summarized the ‘‘material contained in [the

aforesaid SIP], prospectus.” To participate in the SIP, an

employee had to agree to accept an “irrevocable 15 percent

reduction in wages or salary from the start of the program

through December 31, 1990.’4

Plaintiffs were stationed at the Nashville P*I*E ter-

minal, and all but one (Eddie) had more than ten years ex-

perience. Between September and November 1985, each

signed an agreement to participate in the SIP, which con-

tained the following provision:

I understand and agree that participation in the

Compensation Program means that my wages or

salary (as now or hereafter in effect) will be reduc-

ed by 15 percent beginning on the date the Com-

pensation Program becomes effective, continuing

through December 31, 1990. I acknowledge

receipt of a Prospectus relating to the offering of

Ryder/P*I*E Common Stock under the Stock In-

vestment Plan and the Compensation Program. ~

I elect to participate in the Compensation Pro-

gram and in the Stock Investment Plan of

Ryder/P*I*E Nationwide, Inc.®

P*I*E was sold to Maxitron, Inc. on January 1,

3 This outline or summary was “qualified in its entirety by reference to

the detailed information contained in such prospectus.”

4 Certain collective bargaining unit employees, however, might par-

ticipate at a 5 percent reduction. This 15 percent-5 percent distinction

is not challenged in the instant litigation.

5 Effective January 1, 1986, Ryder/P*I*E Nationwide, Inc. changed its

name to P*I*E Nationwide, Inc.

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1986, just a few months after plaintiffs elected to join the

SIP. Approximately 85% of eligible employees had similar-

ly elected to join the SIP, which became effective

December 31, 1985.6 “The wage reduction election could

not be revoked or changed during participation,’ and was

“intended to be irrevocable.” Plaintiffs claim that they

were told by P*I*E representatives that the company

would close because of its poor financial condition if

employees did not participate in the SIP and that ‘‘[djefen-

dant corporation under no circumstances would be sold.’’®

The SIP, however, contained one provision indicating that

no representations, beyond those in the prospectus itself,

were authorized, and another provision referring to a possi-

ble sale of P*I*E stock. Plaintiffs concede that the SIP

contained participation, funding, and vesting requirements

“as provided in ERISA,” and the district court found that

the SIP qualified under ERISA. Plaintiffs did not seek to

exhaust their administrative remedies under the SIP

before bringing suit in the district court.

Defendant’s motion to dismiss, based upon ERISA

preemption, was referred to a magistrate, who recommend-

ed that it be denied. He concluded that the cause of action

related to ‘“‘the manner in which this defendant procured

the plaintiffs’ agreements to withhold money from their

pay” rather than “‘to the administration of the ESOP,” or

to “‘benefits under the stock option plan.’’? He also stated

6 The SIP provided that the plan was conditioned upon at least 70% of

the company’s 11,000 employees electing to participate.

7 These findings of the magistrate were not contested by either party.

8 Plaintiffs’ affidavits indiceted only that “upper-level management

representatives told them that the Company was not for sale” because

of its bad financial condition.

9Memorandum of the district court, Joint Appendix at 32.

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that ‘8 1144(a) does not apply to the common law causes

of action to determine whether or not the plainti®*> were

coma by fraud or misrepresentation to join the benefit

plan.’’!

The district court agreed with the magistrate’s

recommendation, and held that ‘[pjreemption by ERISA

only applies once the benefit plan is in existence,” and does

not apply to alleged common law actions of fraud or

misrepresentation ‘‘to get the plaintiffs to join the plan.’’!!

Judge Higgir ~ also held that “Section 1132(a) is not ap-

plicable to this action,” because it does not ‘‘deal with an

administrator’s or fiduciary’s duties or breach of duties

under the plan.’’!2

It is clear that the Supreme Court has given ERISA

a broad construction with respect to its preemptive effect

on state law and state actions that ‘‘relate to’’ an employ-

ment benefit Plan. Shaw v. Delta Air Lines, Inc., 463 U.S.

85, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983); Mackey v.

Lanier, Collection Agency & Service, Inc., ___. U.S. ___.,

108 S.Ct. 2182, 2185, 100 L.Ed.2d 836 (1988); Pilot Life In-

surance Co. v. Dedeaux, 481 U.S. 41, 45-46, 107 S.Ct. 1549,

1551-52, 95 L.Ed.2d 39 (1987) (observing that ‘‘the express

pre-emption provisions of ERISA are deliberately expan-

sive’). We have held, consistent with this interpretation,

that ‘“‘Congress used ‘relate to’ in its broadest sense.”’

Authier v. Ginsberg, 757 F.2d 796, 800 (6th Cir.) (citing

Shaw, 463 U.S. at 98, 103 S.Ct. at 2900), cert. denied, 474

U.S. 888, 106 S.Ct. 208, 88 L.Ed.2d 177 (1985); see also

Holland v. Burlington Industries, Inc., 772 F.2d 1140,

10 Memorandum of the district court, Joint Appendix at 32.

11 Memorandum of the district court, Joint Appendix at 34.

12 Memorandum of the district court, Joint Appendix at 38-39.

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1147 (4th Cir.1985) (stating that § 1144(a) is a section of

“unparallelled breadth”), aff'd, 477 U.S. 901, 106 S.Ct.

3267, 91 L.Ed.2d 559 (1986). Whether plaintiffs’ cause of

action for what amounts to a fraudulent procurement of

their consent to participate in the SIP is sufficiently

related to the plan itself, or whether the relation, if any, is

“too tenuous, remote, or peripheral a matter to warrant a

finding that the [action] ‘relates to’ the plan,’’ is the ques-

tion before us. Shaw, 463 U.S. at 100 n. 21, 103 S.Ct. at

2901 n. 21.

ERISA makes clear that even indirect state ac-

tion bearing on private pensions may encroach

upon the area of exclusive federal concern.

ERISA’s authors clearly meant to preclude the

States from avoiding through form the substance

of the preemption provision.

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 525,

101 S.Ct. 1895, 1907, 68 L.Ed.2d 402 (1981).

After discussing Scott v. Gulf Oil Corp., 754 F.2d

1499 (9th Cir.1985), the district court cited it as ‘finding

that if an individual is neither a participant nor beneficiary

then he does not fall within the sphere of ERISA.’’!3

Because the purported misconduct of P*I*E occurred

before plaintiffs became participants or beneficiaries, and

because they were not suing for benefits under the plan, the

district court held that preemption did not apply. Scott

concerned the employees’ loss of severance and ‘‘prospec-

tive” benefits after Gulf sold the refinery to another com-

pany which agreed to continue the employment of former

Gulf Oil employees. Jd. at 1505. ‘“The conduct giving rise

to the claim was the negotiation of an employment contract

13 Memorandum of the district court, Joint Appendix at 40.

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which prevented the existence of an employee benefit

plan.’’ Jd. The Scott court held that the plaintiffs’ state law

claims were not preempted because they did ‘‘not raise any

issues concerning the matters regulated by ERISA.” /d.

“‘The issues raised by the claim,’’ stated the court, ‘‘are not

different than those that would be raised by a claim that

Gulf had conspired with [the buyer] to accept . . . lower

wages, a claim that would clearly not be preempted by

ERISA.” Id. The court also indicated that the plaintiffs’

claim for prospective benefits was closely analogous to the

claim in Freeman v. Jacques Orthopaedic & Joint Implant

Surgery Medical Group, Inc. 721 F.2d 654 (9th Cir.1983), in

which an employee brought an action alleging that his

employer fraudulently induced him to waive his right to

participate in a pension plan. The Freeman court held that

plaintiff’s action could not be maintained under ERISA

because the plaintiff, having waived participation in the

plan, was not a “‘participant or beneficiary’’ as required by

statute. The court also held that because the damages

sought by the plaintiff were not “‘benefits under a plan,”

they could not be awarded in an ERISA action.

The district court also cited Blau v. Del Monte Corp.,

748 F.2d 1348, 1352 (9th Cir. 1984), cert. denied, 474 U.S.

865, 106 S.Ct. 183, 88 L.Ed.2d 152(1985), which observed

that “[olnce established, ERISA operates to protect an

employee’s interest in the welfare benefit program.’’ The

district court noted that P*I*E’s asserted wrongful act oc-

curred before the SIP was established and thus, by in-

ference, the language cited from Blau would make ERISA

inapplicable.

A contrary decision was rendered in Phillips v.

Amoco Oil Co., 799 F.2d 1464 (11th Cir.1986), cert. denied,

481 U.S. 1016, 107 S.Ct. 1893, 95 L.Ed.2d 500 (1987).

There, employees of Amoco asserted that their past

A-9

employer, Amoco, and Norgas, which bought a portion of

Amoco’s business and assets, fraudulently prevented them

from negotiating with Norgas, their new employer, concer-

ning whether their years of service with Amoco would be

credited when calculating retirement benefits under the

ERISA plan. 799 F.2d at 1469. Phillips held that the com-

mon law fraud claim was preempted under ERISA, but ex-

pressly limited the holding to the facts of the case. Id. at

1470 n.2. The basis of the holding was that the claim

depended on “the existence of a duty to disclose, which

necessarily depends on an interpretation of the fiduciary

duties imposed by ERISA”. Jd. at 1470. The damages

claimed, furthermore, stemmed from the loss of ERISA

benefits, which were deemed to “relate to” the employee

benefit plan in question. Jd. The district court in the in-

stant case did not mention Phillips, but neither did Phillips

cite to the Ninth Circuit cases heretofore mentioned.

[1] One of the theories relied upon by plaintiffs in the

amended complaint is that the defendant, as their

employer, breached its fiduciary duty. This claim of breach

of fiduciary duty is clearly foreclosed by ERISA. See Shaw,

463 U.S. at 98, 103 S.Ct. at 2900; Phillips, 799 F.2d at 1470;

Authier, 757 F.2d at 802; Ogden v. Michigan Bell

Telephone Co., 571 F.Supp. 520, 523 (E.D.Mich.1983).

Preemption applies to this particular claim because ERISA

provides a specific remedy for breach of fiduciary duty with

respec’, to establishment of an ERISA plan. See 29 U.S.C.

§§ 1104, 1132(a). To this extent, therefore, we must over-

rule the decision of the district court.

[2] We are also convinced that the claim based on

lack of consideration for the SIP undertaking, including

the plaintiffs’ agreement to take a salary cut, is so inherent-

ly and directly related to the SIP that it is preempted by

ERISA. Claimed lack of consideration goes to the

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substance of the undertaking, which is an “area of ex-

clusive federal concern.’’ Alessi, 451 U.S. at 525, 101 S.Ct.

at 1907. We therefore overrule the decision of the district

court on this issue, and hold that plaintiffs’ claim based on

lack of consideration is preempted.

[3] The more difficult claims relate to fraud,

misrepresentation, coercion, and promissory estoppel with

respect to obtaining plaintiffs’ agreement to participate in

the SIP and acceptance of an irrevocable pay cut. An

earlier district court case, Provience v. Valley Clerks Trust

Fund, 509 F.Supp. 388 (E.D.Cal.1981), held:

[W]here the state law has only an indirect effect

on the plan and where it is one of general applica-

tion which pertains to an area of important state

concern, the court should find there has been no

preemption.

Id. at 391 (footnote omitted, emphasis in original). See also

Miller v. Lay Trucking Co., 606 F.Supp. 1326 (N.D.Ind.

1985) (holding that plaintiff's common law action for

fraudulent inducement was not preempted by ERISA

because the fraud occurred prior to the time plaintiff

entered the plan and because the fraud claim did not direct-

ly affect the regulation of the ERISA plan). It may well be

argued that state common law actions based on fraud, coer-

cion, and promissory estoppel do concern important state

interests and have generai application to state causes of ac-

tion rather than to federal claims.

Another case involving issues similar to those pre-

sent in this dispute—an employee stock ownership pro-

gram coupled with a 15 percent wage reduction for

employees of a financially troubled airline— is Childers v.

Northwest Airlines, Inc., 688 F.Supp. 1357 (D.Minn.1988).

Certain employees in that case, who were denied further

A-11

participation in the plan because of promotion, sued alleg-

ing fraud in the inducement and breach of contract. The

court held:

[T]he essence of their claim is that Republic

breached its contract and fraudulently induced

them to agree to wage concessions by failing to

adopt plan requirements that would ensure equal

participation in the ESOPs by all Republic

employees. Such claims are “related to” a plan

regulated by ERISA in the “‘broad common-sense

meaning,” Shaw, 463 U.S. at 97, 103 S.Ct. at

2900, of that ~>rase, and are, therefore, preemp-

ted by ERISA.

688 F.Supp. at 1364.

The Chiiders court, unlike the district court in the in-

stant case, rejected plaintiffs’ argument that their claims

were “founded on acts preliminary to the adoption and

creation of the ESOPz and, therefore, do not have any con-

nection or reference to any employee benefit plan.’’ Jd..

Mid America Hotel Corp. v. Bernstein, 664 F.Supp.

384 (N.D.I11.1987), reached a result similar to Childers by

finding a fraudulent inducement claim to be preempted

because it was intertwined with a claim for breach of

fiduciary duty. Jd. at 386.

Preemption was also found in Dependahi v. Falstaff

Brewing Corp., 653 F.2d 1208 (8th Cir.), cert. denied, 454

U.S. 968, 102 S.Ct. 512, 70 L.Ed.2d 384 (1981), a case in-

volving employees’ claims for tortious interference with a

contract relating to an employee benefit plan. Dependahi

held that preemption of state common law claims, such as

tortious interference, applies when (1) Congress has in-

dicated an intent to “‘occupy the field,’’ and (2) Congress

has provided a remedy for the alleged wrong. 653 F.2d at

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1215. See, to this same effect, Ogden v. Michigan Bell

Telephone Co., 571 F.Supp. 520, 523 (E.D. Mich.1983).

Resolution of the second of these Dependahi stan-

dards depends upon an interpretation of 29 U.S.C. § 1132,

the ERISA civil enforcement provision. Section 1132(a)(3)

provides that a civil action may be brought

by a participant, beneficiary, or fiduciary (A) to

enjoin any act or practice which violates any pro

vision of this subchapter or the terms of the plan,

or (B) to obtain other appropriate equitable relief

(i) to redress such violations or (ii) to enforce any

provisions of this subchapter or the terms of the

plan.

Here, plaintiffs seek a rescission of the plan and

restitution of the agreed wage reduction. Neither party has

cited any case indicating that § 1132 provides a remedy of

the type sought by the plaintiffs. Plaintiffs, unlike the com-

plainants in some of the cases cited or discussed above, do

not seek plan benefits or an increase in plan benefits;

rather, they seek not to be bound as participants and thus

to recoup their wage reductions. (Childers claimants, for ex-

ample, sought claims for benefits under the ESOP, an

ERISA plan, and disputed their elimination from

participation).

It may be seen that there is respectable authority for

positions taken by botl parties in this case concerning

preemption of state cummon law claims of fraud,

misrepresentation, and promissory estoppel. This court

has not previously ruled on this issue. We are disposed,

however, toward the reasoning of Dependahl v. Falstaff

Brewing Corp., 653 F.2d 1208 (8th Cir.), cert. denied, 454

U.S. 968, 102 S.Ct. 512, 70 L.Ed.2d 384 (1981), that

preemption should apply to a state law claim only if Con-

A-13

gress has provided a remedy for the wrong or wrongs

asserted. Giving plaintiffs the benefit of some doubt in this

respect, we are uncertain whether 29 U.S.C. § 1132 pro-

vides, under the circumstances of this case, an adequate

remedy to redress the wrongs claimed, specifically, rescis-

sion and refund of wage reductions. We therefore AFFIRM

the action of the district court in concluding there was no

ERISA preemption, but only with respect to the fraud,

misrepresentation, and promissory estoppel!‘ claims.

DAVID A. NELSON, Circuit Judge, concurring in

part and dissenting in part.

If the plaintiffs’ claims or fraud, misrepresentation,

and promissory estoppel have not been preempted under

ERISA—and I agree with the court’s resolution of that

close question—it does not seem to me that the remaining

claims (breach of fiduciary duty and lack of consideration)

can fairly be said to have been preempted either.

The source of the fiduciary duty to which the

employer was alleged to have been subject is unrelated to

the benefit plan. The amended complaint alleges simply

that ‘“‘a fiduciary duty to fairly, openly and honestly

disclose pertinent and material facts’”’ arose because the

plaintiffs, as the defendant is claimed to have known,

“‘were in an inherently unequal bargaining position with

defendant,” and the plaintiffs “had placed trust and con-

fidence in Defendat to act fairly and in good faith toward

Plaintiffs.’’ The supposed fiduciary duty thus has nothing

to do with the administration of the plan or the payment of

benefits under it—and I cannot see that the alleged duty to

14 We are not called upon to decide at this juncture the effect of the plan

language that no oral promises outside the plan or prospectus were to

be binding.

A-14 -

make full disclosure is any more closely related to the plan

than is the duty not to make affirmative misrepresenta-

tions. If the alleged violation of the latter duty is not

covered by ERISA, I do not understand why the alleged

violation of the former is.

Turning to the supposed lack of consideration, I have

no doubt that the claim would have been preempted had

the plaintiffs asserted that they failed to receive the shares

of stock promised them under the plan. As I read the

amended complaint, however, that is not what the plain-

tiffs are contending. The plaintiffs do not deny that they

have been earning stock in the company on a daily basis,

and the defendant’s affidavit shows they have been; it is

“uncontroverted,” as the magistrate noted, that the plain-

tiffs have been credited with stock ownership consistent

with their pledges. The lack of consideration claim makes

no sense to me, but if the plaintiffs are not contending that

they failed to receive the stock to which the benefit plan en-

titles them, I do not think the claim is covered by ERISA.

I would affirm the judgment of the district court on

all counts.

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APPENDIX B

IN THE UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF TENNESSEE

800 UNITED STATES COURTHOUSE

OFFICE OF THE CLERK

DATE: 11-26-86

RE: 3:86-0423-Higgins

Enclosed is a copy of:

REPORT & RECOMMENDATION

signed by the Judge on

11-25-86

and entered on the docket by the Clerk on

11-26-86

CLERK, U.S. District Court

by: BARBARA VAUGHN

Deputy Clerk

Enclosure

xc: Lara W. Short

Thomas M. Donnell, Jr.

Peter Reed Corbin

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IN THE UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF TENNESSEE

NASHVILLE DIVISION

FILED

NOV 25 1986

BOBBY WAYNE PERRY, PHILIP )

ANTHONY EDDIE, ERNEST COR- )

DELL JONES, JAMES H. MATHIS )

and GARY R. HYDER

)

Vv. ) NO. 3-86-0423

)

P*I*E NATIONWIDE, INC. )

TO: Honorable Thomas A. Higgins, District Judge

REPORT AND RECOMMENDATION

On August 11, 1986, the Court referred this civil ac-

tion to the undersigned for consideration of the defendant's

motion to dismiss or in the alternative for summary judg-

ment, and for the submission of proposed findings of fact

and recommendations for disposition of said motion.

The plaintiffs are employees of the defendant at its

Nashville terminal facility, and they filed this action on

May 8, 1986, alleging various state law claims concerning

the manner by which the defendant induced them to agree

to participate in an employee stock investment plan. The

plaintiffs seek the return of the money withheld from their

wages for investment in the plan plus interest, and to have

the plan contracts which they executed declared void. The

plaintiffs allege jurisdiction pursuant to 28 U.S.C. § 1332,

in that there is diversity of citizenship between all plain-

tiffs and the defendant, and that the amount in controver-

sy exceeds the jurisdictional amount.

A-17

The defendant’s motion raises one primary issue: Are

the plaintiffs’ various state common law causes of action

preempted by the Employee Retirement Income Secruity

Act of 1974 (ERISA), 29 U.S.C. § 1001, et seq.?

In its motion the defendant contends that the defen-

dant’s employee stock investment plan is an employee

stock option plan as contemplated under ERISA, 29 U.S.C.

§ 1107(d)(6), and the Internal Revenue Code, 26 U.S.C. §

4975(e)(7). The defendant argues that since the stock in-

vestment plan is a benefit plan subject to ERISA’s

coverage provisions, the plaintiffs’ statelaw claims are

preempted by 29 U.S.C. § 1144 (a). The defendant relies

upon Blau v. Del Monte Corp., 748 F.2d 1348 (9th Cir.

1985), cert. den. U.S. , 106 S.Ct. 183 (1986): Shaw

v. Delta Air Lines, Inc., 463 U.S. 85, 77 L.Ed. 2d 490 (1983).

The defendant contends that plaintiff cannot yet

bring a federal cause of action against the plan under

ERISA since they have failed to exhaust available ‘‘inter-

fund” remedies as required by 29 U.S.C. § 1133. The de-

fendant states that this section requires that every

employee welfare plan ‘‘provide adequate notice in writing

to any participant or beneficiary whose claim for benefits

under the plan has been denied, setting forth the specific

reasons for such denial, written in a manner calculated to

be understood by the participant, and .. . afford a

reasonable opportunity to any participant whose claim for

benefits has been denied for a full and fair review by the ap-

propriate named fiduciary of the decision denying the

claim.’”’ The defendant states that this employee stock in-

vestment plan has such a remedy and that plaintiffs have

failed to allege that they have exhausted said remedies

before resorting to suit.

The affidavit of Robert Crosby, Director of Human

Resources at P*I*E, is attached to the defendant’s motion,

A-18

and Mr. Crosby attests that none of the plaintiffs have filed

a claim in accordance with the available interfund

remedies. Therefore, it is argued that plaintiffs’ complaint

is premature and should be dimissed, citing Taylor v.

Bakery and Confectionary Union, 455 F.Supp. 816 (E.D.

N.C. 1978).

In addition, defendant states that because of plain-

tiffs’ failure to exhaust interfund remedies and their

reliance on the Court’s diversity jurisdiction, plaintiffs’

complaint cannot be construed as having alleged a cause of

action under ERISA. The defendant also argues that the

complaint is procedurally defective inasmuch as the

averments are not made in numbered paragraphs, and the

contents of each averment, as far as practicable, is not a

statement of a single set of circumstances, but that the

complaint is a confusing mishmash of legal claims and fac-

tual allegations. The defendant relies upon Rule 10(b),

Federal Rules of Civil Procedure.

The defendant also argues that the plaintiffs’ claim

of fraud has not been properly alleged as required by Rule

9(b) of the Federal Rules of Civil Procedure, since the

allegations fail to set forth with particularity any cir-

cumstances which support a claim of fraud. The defendant

also states that plaintiff's allegations with respect to coer-

cion, misrepresentation and promissory estoppel, as well as

recision, are not supported by any of the factual averments

contained within the complaint, and should accordingly be

dismissed.

Finally, defendant states that plaintiffs’ allegation of

lack of consideration for the investment plan is contrary to

the uncontorverted facts inasmuch as since the date of the

plan implementation, plaintiffs have invested with, and ac-

cordingly been credited with, stock ownership consistent

with their pledges. The defendant argues that this portion

A-19

of the complaint should be summarily adjudged in defen-

dant’s favor.

Plaintiff has responded and argues that this lawsuit

raises the issue of whether or not there was a valid contract

between the parties binding the plaintiffs to the stock op-

tion plan in question, and that they assert that the defen-

dant’s conduct in coercing the plaintiffs to participate in

the plan voids any contract ab initio and, therefore, the

state action for fraud is not in any way related to the

employee benefit plan and, therefore, the preemption doc-

trine is not applicable to this cause of action. The plaintiff

cites Cattin v. General Motors Corp., 612 F.Supp. 948

(W.D. Mich. 1985).

Background Facts

The defendant, P*I*E* Nationwide, Inc., is a long-

distance, over-the-road, cargo carrier, operating in in-

terstate commerce, and in Canada, and has somewhat more

than 11,000 employees and maintains a network of over

300 terminals. See Exhibit A attached to Affidavit of

Robert Crosby, attached to the Motion to Dismiss. The

defendant is a wholly-owned subsidiary of IU International

Corp., a diversified services company.

During 1984, and for the first half of 1985, the defen-

dant experienced gigantic financial losses and apparently

was in some difficulty. See Exhibit A attached to Crosby

Affidavit, p. 5. The company decided to offer to its

employees a stock investment plan in August 1985, and the

plan was designed to enable emplovees to acquire stock

ownership in the company, and to provide employees who

participated with the opportunity to accumulate capital for

their future economic security. Crosby Affidavit, p. 2. The

plan was subject to the provisions of ERISA, and a pro-

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spectus was issued and published. Jd., Exhibit A. Ali

potentially eligible employees were provided with a

brochure extensively describing the plan, its purposes,

eligibility criteria, and all other relevant terms and condi-

tions. Id., Exhibit B.

An employee eligible to participate in the plan had to

voluntarily agree to accept an irrevocable 15 percent reduc-

tion in wage or salary from the start of the program

through December 31, 1990. Jd., Exhibit A. Collective

bargaining unit employees whose wages were between 90

and 100 percent of the standard contract rate could par-

ticipate with an irrevocable 5 percent reduction in wages or

salary through the same date. IJd., at 2.

The plaintiffs are employees of the defendant and are

stationed at its Nashville terminal. Bobby Wayne Perry

has been employed since September 1973, Philip Anthony

Eddie since April 5, 1978, Ernest Cordell Jones since June

4, 1973, James H. Mathis since May 1972, and Gary R.

Hyder since July 1973. On September 23, 1985, Mr. Jones

elected to participate in the stock investment plan and

signed an agreement to do so, which states as follows:

I understand and agree that participation in the

Compensation Program means that my wages or

salary (as now or hereafter in effect) will be reduc-

ed by 15 percent beginning on the date the Com-

pensation Program becomes effective, continuing

through December 31, 1990.

I acknowledge receipt of a Prospectus relating to

the offering of Ryder/P-I-E Common Stock under

the Stock Investment Plan and the Compensa-

tion Program.

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I elect to participate in the Compensation Pro-

gram and in the Stock Investment Plan of

Ryder/P-I-E Nationwide, Inc.

Id., Exhibit F.

On September 28, 1985, Mr. Eddie elected to par-

ticipate and signed a similar agreement. See Id., Exhibit E.

On October 3rd, Mr. Hyder elected and signed the same

agreemént. Jd, Exhibit H. On October 25th, Mr. Mathis

signed this agreement. Jd, Exhibit G. Finally, on

November 14, 1985, Mr. Perry made the same election and

signed the agreement. See Id., Exhibit D.

The stock investment plan provided that the plan

was conditioned upon at least 70 percent of the company’s

11,000 eligible employees electing to participate in the

plan. A total of approximately 85 percent of the eligibile

employees did in fact elect to participate, and the plan took

effect. Id.,p. 2, 3. According to Mr. Crosby’s affidavit, once

an employee agrees to the salary reduction and to par-

ticipate in the plan, he must do so for the full program

period, or until employment is terminated or he retires or

dies, whichever first occurs. The wage reduction election

may not be revoked or changed during participation. Jd. In

addition, the plan contains no provision for early employee

withdrawal from the plan. The salary and wage reduction

was intended to be irrevocable and to continue as provided

in the election contract, and Mr. Crosby attests that no

participant in the plan has been allowed to withdraw from

it, nor has any employee been given a rebate or reinstate

ment of their reduced salary. Jd., at 5.

On May 8, 1986, the plaintiffs filed this complaint

and allege that the defendant company was sold to Max-

itron, Inc. on or about January 1, 1986. They also allege

A-22

that in August of 1985 the stock investment plan was pro-

posed and they seemed to agree more or less with the terms

of the plan as stated by Mr. Crosby in his affidavit. They

also allege that they elected to participate in the plan, but

their decision to do so was the result of threats and coercive

statements made by representatives of the defendant.

They also allege that they relied upon certain misrepresen-

tation made by representatives of the defendant. They

allege that they were told that if they did not participate

in the plan the defendant would be forced to close its

business and each of the plaintiffs would lose their job.

They also allege that those employees who elected not to

participate in the plan would not be allowed to continue to

work for the defendant. They allege that they were told

that the defendant corporation would not be sold. Com-

plaint at 2, 3. The plaintiffs seek an order of the Court

declaring their election to participate be declared void

because it was obtained by fraud, coercion, and

misrepresentation, and that all monies withheld from their

wages or salaries be ordered returned to them plus prejudg-

ment interest. The plaintiffs also seek punitive damages.

There does not appear to be any dispute that the

defendant’s stock investment plan involved in this litiga-

tion qualifies as an employee benefit plan within the mean-

ing of ERISA. As such, the defendant’s argument is that

the plan is subject to the various requirements concerning

participation, funding and investing requirements as pro-

vided in ERISA. See 29 U.S.C. $§ 1051-1086.

Discussion

ERISA is a far-reaching and comprehensive piece of

legislation, and subjects employee benefit plans providing

for fringe benefits to employees to certain federal regula-

tions. The Act was designed ‘‘to promote the interest of

A-23

employees and their beneficiaries in employee benefit

plans.” Shaw v. Delta Air Lines, Inc., supra at 90. The

court went on to explain the Act as follows:

It also sets various uniform standards, including

rules concerning reporting, disclosure, and

fiduciary responsibility, for both pension and

welfare plans. . .ERISA does not mandate that

employers provide any i benefits, and

does not itself proscribe discrimination in the pro-

vision of employee benefits.

Id., at 91.

ERISA is a compiicated piece of legislation. Title I,

29 U.S.C. § 1001 et seg., provides that administrators of all

covered pension plans must file periodic reports with the

Secretary of Labor, prescribes minimum participation re-

quirements, vesting and funding schedules, and establishes

standards of fiduciary conduct for plan administrators and

for civil and criminal enforcement of the Act. Other por-

tions of the Act, see Title II, amended various provisions

of the Internal Revenue Code, and established the

qualification of pension plans for special tax treatment so

that such plans could conform to the standards set forth in

Title I of the Act.

The Congress considered it imperative that par-

ticipants have legal remedies to protect their rights and

secure redress for any violations of the Act. Laborers

Fringe Benefit Funds v. Northwest Concrete & Construc-

tion, Inc., 640 F.2d 1350, 1352 (6th Cir. 1981). In addition,

in order to promote uniformity of administration of such

plans, Congress enacted a2 preemption provision, pro-

hibiting application of any state law which “‘relate[s]’’ to

any benefit plan.

A-24

Title 29 U.S.C. § 1144(a) provides as follows:

Except as provided in subsection (b) of this sec-

tion, the provisions of this title and title IV shall

supercede any and all State laws insofar as they

may now or hereafter relate to any employee

benefit plan described in section 4({a) and not ex-

empt under section 4(b).

The Act defines the term “State law” as including

‘‘all laws, decisions, rules, regulations, or other State action

having the effect of law, of any State.” 29 U.S.C. §

1144(c\(1).

The Supreme Court in construing this provision in

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 68

L.Ed. 2d 402 (1981), stated at 522 as follows:

To resolve retirees’ claim that this state policy

should govern we must determine whether such

state laws are preempted by ERISA. Our

analysis of this problem must be guided by

respect for the separate spheres of governmental

authority preserved in our federalist system.

Although the Supremecy Clause invalidates state

laws that “interfere with. or are contrary to, the

laws of Congress . . .,” Gibbons v. Ogden, 9

Wheat. 1, 211 (1824), the ‘‘exercise of federal

supremecy is not lightly presumed,” New York

State Dept. of Soc. Services v. Dublino, 413 U.S.

405, 413 (1973) quoting Schwartz v. Texas, 334

U.S. 199, 203 (1952). As we recently reiterated,

‘(pjreemption of state law by federal statute or

regulation is not favored ‘in the absence of per-

suasive reasons — either that the nature of the

regulated subject matter permits no other conclu-

sion, or that the Congress has unmistakably so

ordained.’ ’’ [citation omitted].

A-25

The Court noted that Congress had in fact enacted a

preemption provision in ERISA and stated as follows:

But for the preemption provision to apply here,

the New Jersey law must be characterized as a

state law “that relate[s] to any employee benefit

plan.” 29 U.S.C. § 1144(a) (1976). [footnote omit-

ted]. That phrase gives rise to some confusion

where, as here, it is asserted to apply to a state

law ostensibly regulating a matter quite different

from pension plans. The New Jersey law governs

the State’s workers’ compensation awards, which

obviously are subject to the State’s police power.

Id., at 523, 524.

The Court held that the New Jersey statute which

prohibited workers’ compensation benefits from being in-

tegrated with retirement benefits was preempted by §

1144(a) because it conflicted with a provision in ERISA

which permits integration. The Court concluded that the

state statute was related to the manner in which ERISA

benefits are calculated, a matter covered by the Act. New

Jersey could not intercede in that process. In Blakeman v.

Mead Containers, 779 F.2d 1146 (6th Cir. 1985), the court

held that common law causes of action for breach of con-

tract were preempted by ERISA “when the claims arise

from the administsration of such plans.” Jd, at 1151,

quoting from Scott v. Gulf Oil Corp., 754 F.2d 1499, 1504

(9th Cir. 1985). The court affirmed summary judgment

dismissal of state common law causes of action because

those claims involved the administration of an employee

benefit plan because the plaintiffs sought to recover

benefits provided in the employee welfare benefit plan set

up by the plaintiffs’ employer.

A-26

In Scott v. Gulf Oil Corp., supra, the Court noted

that the preemption provision was quite broad, but not all

encompassing. Jd., at 1504. The court held that the preemp-

tion provision in ERISA extended to state common law

causes of action and that ‘‘claims brought under state law

doctrines that do not explicity refer to employee benefit

plans are nonetheless preempted when the claims arise

from the administration of such plans.” Jd.. The court cited

Blau v. Del Monte Corp., supra, the case relied upon by the

defendant.

The plaintiff brought an array of common law causes

of action, and the court allowed plaintiff to proceed on

those claims based on unauthorized negotiations and coer-

cion as a result. of which the plaintiffs allege they were

denied benefits that they would have accumulated while

working for their former employer’s successor. The Court

held that plaintiffs were neither participants or

beneficiaries of the plan and they were not suing for any

benefits under a plan. Jd., at 1505.

In Blau the plaintiffs had alleged both ERISA causes

and state law causes of action, among them breach of con-

tract implied in fact, promissory estoppel, estoppel by con-

duct, fraud and deceit, and breach of contract. The court af-

firmed the dismissal of the state common law causes of ac-

tion apparently because the plaintiffs were in fact seeking

benefits under the employee welfare plan involved in the

litigation. Id., at 1350, 1356.

It is therefore the conclusion of the undersigned that

the preemption provision applies to state causes of action

no matter what the subject matter of the cause may be or

what the cause of action may be referred to if the plaintiff

is a participant in a plan and he seeks to determine his en-

titlement to benefits or he seeks determination of the

A-27

amount of his benefits. Any state cause of action, whether

common law or statutory, which affords a plan participant

a remedy for determining any of these issues is a State law

which relates to the administration of a plan and is preemp-

ted by § 1144(a). However, in light of the Supreme Court’s

admonition that supremacy of federal law is not “lightly

presumed,’”’ it is my conclusion that § 1144(a) does not

preempt these causes of actions raising issues about the

manner in which this defendant procured plaintiffs’

agreements to withhold money from their pay. I do not

believe that these causes relate to the administration of the

plan involved, nor are the plaintiffs seeking benefits under

the plan. They say their agreements to join are void, or

voidable, and they seek only those amounts withheld from

their pay. Certainly, Tennessee has a great interest in the

policing of contract negotiations and nullifying those con-

tracts entered into in this state which were obtained by

fraud or misrepresentation.

The civil enforcement provisions of ERISA seem to

indicate that the preemption provision should extend no

further than as described above. In 29 U.S.C. § 1132(a),

Congress has provided for civil enforcement of ERISA and

provides that a civil action may be brought by a “‘partici-

pant or beneficiary to recover benefits due to him under the

terms of his plan, to enforce his rights under the terms of

the plan, or to clarify his rights to future benefits under

terms of the plan ... .” This provision fails to provide a

remedy to individuals who may claim that they were

fraudulently induced or coerced into joining a plan in the

first place. The Court has not been cited to any provision

of the Act that would afford such relief to an individual. It

stands to reason that if a person is not a participant in the

plan or he does not seek benefits provided in the plan, nor

does he desire to clarify his right to future benefits, nor to

enforce any right under the terms of the plan, then

A-28

§ 1144(a) would not apply to his common law causes of ac-

tion to determine whether or not he was coerced to join the

plan or whether his employer practiced fraud or

misrepresentation in order to obtain his participation. This

case is more similar to the facts in Scott v. Gulf Oil Corp.,

supra, than to Blau, supra.

Because these plaintiffs are not seeking benefits nor

the determination of the amount of benefits, nor are they

threatening the administration of this plan, I conclude that

they are not required to pursue ‘‘interfund’’ remedies.

RECOMMENDATION

Having concluded that the plaintiffs’ civil action is

not preempted, the undersigned recommends that the

defendant’s motion to dismiss (or for summary judgment)

be denied. However, the undersigned does agree with

defendant that plaintiffs’ complaint needs some revision to

clarify the various claims. It is the recommendation of the

undersigned that defendant’s motion to dismiss based on

objections to the complaint’s style be denied provided

plaintiffs file an amended complaint which complies with

the pleading rules within twenty (20) days.

ANY OBJECTIONS to this Report and Recommen-

dation must be filed with the Clerk of Court within ten (10)

days of receipt of this notice, and must state with par-

ticularity the specific portions of this report, or the propos-

ed findings or recommendation to which objection is made.

Failure to file objections within the specified time waives

the right to appeal the District Court’s order. See Thomas

A-29

v. Arn, _,U.S._, 106 S.Ct. 466, 475 (1985); United States

v. Walters, 638 F.2d 947 (6th Cir. 1981).

Respectfully submitted,

/s/__ illegible

UNITED STATES MAGISTRATE

A-30

APPENDIX C

THE UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF TENNESSEE

OFFICE OF THE CLERK

800 UNITED STATES COURTHOUSE

NASHVILLE, TENNESSEE 37203

(615) 736-7178

Received

AUG 14 1987

DATE: 8-12-87

RE: 3:86-0423-Higgins

Enclosed is a copy of the following:

MEMORANDUM & ORDER

entered on the docket by the Clerk in compliance with Rule

58 and/or Rule 79(a) of the Federal Rules of Civil Procedure

8-12-87

CLERK, U.S. District Court

by: BARBARA VAUGHN

Deputy Clerk

Copies sent to:

Lara W. Short

Thomas Donnell, Jr.

Peter Reed Corbin

A-31

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF TENNESSEE

NASHVILLE DIVISION

BOBBY WAYNE PERRY, ET AL. ]

]

v. ] No. 3-86-0423

| Judge Higgins

P-I-E NATIONWIDE, INC. ]

ORDER

In accordance with the memorandum contem-

poraneously filed, the defendant’s objections to the

Magistrate’s Report and Recommendation (filed November

25, 1986) are denied and the Magistrate’s findings and con-

clusions are adopted and approved in all regards. Accor-

dingly, the defendant’s motion to dismiss is therefore

denied.

It is so ORDERED.

/s) Thomas A. Higgins

Thomas A. Higgins

United States District Judge

8-11-87

This document was entered on the

docket in compliance with Rule 58

and/or Rule 79 (a) FRCP on

8-12-87. By: BJV_

A-32

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF TENNESSEE

NASHVILLE DIVISION

BOBBY WAYNE PERRY, ET AL. ]

]

v. ] No. 3-86-0423

] Judge Higgins

]

P-I-E NATIONWIDE, INC. -

MEMORANDUM

On May 8, 1986, the plaintiffs, Bobby Wayne Perry,

Phillip Anthony Eddie, Ernest Cordell Jones, James H.

Mathis and Gary R. Hyder (plaintiffs) brought this action

age’ 1st P-I-E Nationwide, Inc. (PIE). All of the plaintiffs

are citizens and residents of the State of Tennessee and

were citizens at all times pertinent to the facts in this ac-

tion. The defendant PIE is incorporated under the laws of

the State of Florida with its principal place of business out-

side of Tennessee. Federal jurisdiction was invoked pur-

suant to 28 U.S.C. § 1332. The plaintiffs allege in their

original complaint that they were induced to participate in

a stock investment plan as a result of fraud, coercion,

misrepresentation, promissory estoppel, recission, lack of

consideration and breach of fiduciary duty. The plaintiffs

request that the contract they signed be declared void and

that the monies invested under the contract be returned to

them, plus interest. The plaintiffs also request punitive

damages. On July 2, 1986, the defendant filed a motion to

dismiss or, in the alternative, a motion for-summary judg-

ment. The defendant asserts in its motion that the plain-

tiffs’ common law cause of action outlined in their com-

A-33

plaint was preempted by the Employee Retirement Income

Security Act (ERISA) 29 U.S.C. § 1001,et seg., a federal

statute. In its motion, the defendant also contends that the

defendant’s employee stock investment plan is an

Employee Stock Ownership Plan (ESOP) as contemplated

under ERISA, 29 U.S.C. § 1107(d)\(6), and the Internal

Revenue Code 26 U.S.C. § 4975(e)(7). The defendant, rely-

ing on Blau v. Del Monte Corp., 748 F.2d 1348 (9th Cir.

1985), cert. denied, 106 S. Ct. 183 (1986); Shaw v. Delta Air

Lines, Inc., 463 U.S. 85, 103 S. Ct. 2890, 77 L. Ed.2d 490

(1983) argues that since the stock investment plan is a

benefit plan subject to ERISA’s coverage provisions the

plaintiffs’ state law claims are preempted by 29 U.S.C. §

1144(a}.

By order entered August 11, 1986, this action was

referred to the Magistrate for a determination of whether

to dismiss this action or, in the alternative, to grant sum-

mary judgment. Oral argument on the defendant’s motion

was heard by the Magistrate on Monday, October 20, 1986.

The Magistrate’s Report and Recommendation

(Report) was filed on November 25, 1986. The Magistrate

found that 29 U.S.C. § 1144(a), the preemption provision of

ERISA, applies to state causes of action no matter what

the subject matter of the cause may be or what the cause

of action may be referred to if the plaintiff is a participant

in the plan and seeks to determine his entitlement to

benefits or seeks a determination of the amount of his

benefits. The Magistrate further concluded that § 1144(a)

does not preempt the causes of action that deal with issues

about the manner in which this defendant procured the

plaintiffs’ agreements to withhold money from their pay.

The Magistrate further found that the plaintiffs’ cause of

action did not relate to the administration of the ESOP, nor

A-34

are the plaintiffs seeking benefits under the stock option

plan. Section 1144(a) does not apply to the common law

causes of action to determine whether or not the plaintiffs

were coerced by fraud or misrepresentation to join the

benefit plan. Therefore, the Magistrate recommended that

the motion to dismiss or for summary judgment be denied.

The defendant filed its objections to the Report on

December 10, 1986. The plaintiffs filed a response to the

defendant’s objections to the Report on December 18,

1986. On January 20, 1987, this Court heard argument on

the Report. All of the objections go to pages 14-16 of the

Report. The defendant found nothing wrong with the first

13 pages of the Report. The facts as found by the

Magistrate are therefore not in dispute.

The defendant, in its memorandum, conjunctively

addresses its first three objections to the Report by asser-

ting that the Magistrate gave too narrow a reading to the

preemption provisions of ERISA. The defendant argues

that the broad preemption provisions of ERISA clearly

apply to issues about the manner in which this defendant

procured the plaintiffs’ agreement to withhold money from

their pay. The defendant also argues that this is an ESOP

and ERISA therefore controls this action.

In order to promote uniformity in the administration

of employee benefit plans under ERISA Congress enacted

a preemption provision that prohibits the application of

any state law which “relates” to the benefit plan. Title 29

U.S.C. § 1144(a) provides as follows:

Except as provided in subsection (b) of this sec-

tion, the provisions of this subchapter and sub-

chapter III of this chapter shall supersede any

and all State laws insofar as they may now or

A-35

hereafter relate to any employee benefit plan

described in section 1003(a) of this title and not

exempt under section 1003(b) of this title.

Therefore, a state law which relates to an employee benefit

plan is preempted by ERISA. The case law has helped to

clarify the meaning of the term “‘relates to.’’ It has clarified

the fact that ERISA preemption is not limited to state law

claims which are specifically designated to affect employee

benefit plans. Preemption of state law claims by ERISA

depends on the conduct to which such law is applied, not

the form or label of the law. See Shaw v. Delta Airlines, 463

U.S. 85, 103 S. Ct. 2890, 77 L. Ed.2d 490 (1983). Common

law causes of action for breach of contract are preempted

by ERISA ‘‘when the claims arise from the administration

of such plans.”’ Blakeman v. Meade Containers, 779 F.2d

1146, 1151 (6th Cir. 1985), citing Scott v. Gulf Oil Corp.,

754 F.2d 1499, 1504 (9th Cir. 1985). Therefore, in determin-

ing whether each of the plaintiffs’ claims is preempted by

ERISA, the Court must inquire as to whether the conduct

challenged by the claim was part of the administration of

the employee benefit plan. If the plaintiff is seeking a

remedy that deals with the administration of the ERISA

plan, benefits under the plan, or misconduct growing out of

the administration of the ERISA plan, then the plaintiffs’

state law cause of action is preempted by the federal

statute. See Arthur [sic] v. Ginsberg, 757 F.2d 796 (6th Cir.

1985), cert. denied, 106 S. Ct. 208 (1985). As the Magistrate

found, there is no dispute that Congress intended a broad

application of preemption by ERISA of state law to

eliminate the threat of conflicting or inconsistent state and

local regulation. Shaw, supra., 463 U.S. at 99. However,

ERISA was not intended to preempt state or local laws

that do not relate to the administration of an employee

benefit plan or deal with benefits under such a plan.

A-36

The Magistrate was correct in his conclusion ‘‘that

the preemption provision applies to state causes of action

no matter what the subject matter of the cause may be or

what the cause may be referred to if the plaintiff is a par-

ticipant in a plan and he seeks to determine his entitlement

to benefits or he seeks determination of the amount of his

benefit.” Preemption by ERISA only applies once the

benefit plan is in existence. It does not apply to the com-

mon law actions of fraud, misrepresentation, etc., in order

to get the plaintiffs to join the plan. Joining a plan is not

the same as administration under the plan. The Court

agrees with the Magistrate’s finding that “8 1144(a) does

not preempt these causes of action raising issues about the

manner in which the defendant procurred the plaintiffs’

agreements to withhold money from their pay.” The

Report does not apply a narrow and strained application of

the ERISA preemption provision. The plaintiff's cause of

action does not deal with the administration of a benefit

plan as regulated by ERISA but rather the plaintiffs’ cause

of action deals with activity on the defendant’s behalf

before the benefit plan was effectuated. The defendant's

first three objections are without merit.

In its memorandum of law in support of its objec-

tions to the Report, the defendant addresses objections

numbers four and five concurrently by maintaining that

the plaintiffs’ cause of action clearly “relates to the ad-

ministration of the plan involved. . .” The Court will also

address the defendant’s objections numbers four and five

together. For the reasons stated above, ERISA regulates

the administration of the employee benefit plan. The defen-

dant’s activity which is challenged by the plaintiffs’ claim

was not part of the administration of the plan but rather

fraud in the inducement to participate in the plan. The

Court affirms the Magistrate’s finding and concludes that

the defendant’s insistence is incorrect. The defendant

A-37

insists that inducement to participate in an employee

benefit plan directly relates to the administration of the

plan. The planitiffs’ cause of action in the case at bar is not

governed by the federal ERISA statute. The defendant’s

action occurred prior to the commencement of the retire-

ment benefit plan.

The defendant’s sixth objection to the Report is that

“the Magistrate’s reading of the civil enforcement provi-

sions of ERISA is too constrained and restricted to ac-

complish the clear statutory objectives sought to be ac-

complished by the Act.’’ The defendant does not dispute

the fact that Section 1132(a) provides a participant in an

ERISA plan with the right to bring « civil action to enforce

his rights under the terms of the plan or to clarify his rights

to future benefits under the terms of the plan. The defen-

dant is confusing joining a plan with rights under the terms

of a plan. The plaintiffs are not asking for clarification of

their rights to benefits under the terms of the plan. There

is no dispute about this issue; the employee benefits are

clearly understood. The thrust of the plaintiffs’ allegations

are to the effect that they were fraudulently induced to join

the plan. The plaintiffs make no allegations concerning the

administration of the plan. The defendant has failed to

acknowledge that fraudulent inducement to join an

employee benefit plan is not administration under the pian

which is governed by ERISA. The defendant’s sixth objec-

tion to the Report is without merit.

In its seventh objection, the defendant asserts that

the Magistrate’s conclusion that the ERISA civil enforce-

ment provision “fails to provide a remedy to individuals

who may claim that they were fraudulently induced or

coerced into joining a plan in the first place’’ is erroneous.

The Magistrate supports his conclusion by aptly pointing

out that the Court was not cited to any provision of the Act

A-38

which would afford such relief to an individual. The

legislative history of ERISA does not address whether or

not the broad preemption provisions of ERISA were in-

tended by Congress to preempt a state law based claim of

fraudulent inducement to participate in an employee

benefit plan.!

This Court is aware that ERISA effectively excludes

all state participation in the regulation of employee benefit

plans. The Magistrate is not denying or ignoring the

breadth of the federal preemption intended by Congress. In

his Report, the Magistrate clearly recognized the broad

preemptive purpose of the legislation to regulate benefit

plans. This regulation is reflected in the Act’s history.

Representative Dent, in referring to the preemption during

debates on the bili, comments: ‘Finally, I wish to make

note of what is to many the crowning achievement of this

legislation, the reservation to federal authority the sole

power to regulate the field of employee benefit plans.” 120

Cong. Rec. 29197 (1974). This clearly indicates that regula-

tion is te be of the benefit plans and that no remedy is men-

tioned that deals with individuals who were fraudulently

induced to join the plan, i.e. , activity before the plan was

in place.

There is also no case law that supports the defen-

dant’s proposition that fraudulent inducement to join an

employee benefit is governed by ERISA. The Court con-

cludes that the defendant’s proposition is toc broad and is

without merit. The preemption provision deals with ad-

ministration of a benefit plan. See Blakeman v. Meade Con-

tainers, 779 F.2d 1146, 1151 (6th Cir. 1985); Arthur [sic] v.

Ginsberg, 757 F.2d 796 (6th Cir. 1985), cert.

1 See the legislative history of Public Law 93-406.

A-39

denied, 106 S. Ct. 208 (1985).

PIE’s objection number eight grows out of objection

number seven. The defendant asserts that the Magistrate’s

reiteration that section 1144(a) does not apply to a state

law based cause of action “‘to determine whether or not. .

.(employees were] coerced to join the plan or whether his

employer practiced fraud or misrepresentation in order to

obtain. . [their] participation” is erroneous. The defendant

objects alleging that § 1132(a) affords the plaintiffs an ex-

clusive remedy and that § 1144(a) does apply.

Section 1132 is the civil enforcement provision for

ERISA. It outlines civil causes of actions that persons are

empowered to bring. A participant, beneficiary, or

fiduciary can enjoin any act or practice which violates a

provision of this subchapter or terms of the plan, obtain ap-

propriate equitable relief to redress a violation or enforce

any provision of this subchapter or terms of the plan. An

administrator’s failure or refusal to comply with a request

for any information also constitutes activity which would

allow a participant, beneficiary or fiduciary to bring a civil

action. 29 U.S.C. § 1132(c). An administrator is a ‘“‘person

specifically designated by the terms of the instrument

under which the plan is operated.” 29 U.S.C. §

1002(16)(A)(i). PIE cannot be classified as an administrator

for its activity prior to the institution of the employee

stock option plan.? Therefore, Section 1132(a) is not ap-

plicable to this action. This action does not deal with an ad-

ministrator’s or fiduciary’s duties or breach of duties under

the plan but rather deals with, as stated above, activity on

2 ERISA govens ESOP when it deals with the vesting and funding, as

well as fiduciary and disclosure requirements, all of which are a part of

the administration of the plan.

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the part of the defendant before the plan was instituted.

The plaintiffs do not contest the administration of the plan

once the plan had been instituted. The plaintiffs contest the

activity on the defendant’s behalf before the institution of

the plan. Therefore, the defendant’s objection number

eight to the Magistrate’s Report is without merit. As the

Magistrate found, neither § 1132(a) nor §1144(a) apply to

the activity of the defendant before the institution of the

employee benefit plan.

In objection number nine, the defendant contests the

case law relied upon by the Magistrate. The defendant con-

tends that the Magistrate is incorrect in his statement that

“this case is more similar to the facts in Scott v. Gulf Oil

Corp., 754 F.2d 1499 (9th Cir. 1985)-than Blau v. Del Monte

Corp., 748 F.2d 1348 (9th Cir. 1984), cert. denied, 106 S. Ct.

183 (1985). Both Scott and Blau deal with preemption by

ERISA of state law causes of action. Both cases stand for

the proposition that the preemption provision applies to

state causes of action no matter what the subject matter of

the cause may be or what the cause of action may be refer-

red to if the plaintiffs are participants in a plan and they

seek to determine their entitlement to benefits or they seek

a determination of the amount of their benefit under the

plan. Scott at 1504; Blau at 1356. ERISA deals with the ad-

ministration, reporting, disclosure, funding, vesting, and

enforcement of benefit plans. The damages claimed by the

plaintiffs must be a benefit under a plan to constitute an

ERISA action. Scott at 1505. Because of the nature of a

claim under ERISA and the facts in the case at bar, this

Court concurs in the Magistrate’s analysis that the facts in

this case are more similar to the facts in Scott than Blau.

Scott relied on the concept stated in Blau that ‘‘once

established, ERISA operates to protect an employee’s in-

terest in the welfare benefit program regardless of whether

A-41

the employer complies with the administrative and repor-

ting requirements detailed under ERISA.” Blau at 1352.

Reiterating the point, if the benefit plan has been establish-

ed then the employee’s state law claim is preempted by

ERISA. In Blau, the piaintiff’s state law claims were

preempted by ERISA because they arose once the plan had

been established. However, this is not the situation in the

instant case. Scott addressed the issue of participants and

beneficiaries by finding that if an individual is neither a

participant nor beneficiary then he does not fall within the

sphere of ERISA. The alleged misconduct of PIE occurred

before the instigation of the benefit plan. The plaintiffs in

this action were not participants or beneficiaries of the plan

and are not suing for any benefit under a plan. See Gulf at

1505.

The defendant’s tenth objection to the Magistrate’s

Report is that the Magistrate’s conclusion that ‘“‘[bjecause

these plaintiffs are not seeking benefits nor the determina-

tion of the amount of benefits, nor are they threatening the

administration of this plan, I conclude that they are not re-

quired to pursue ‘interfund’ remedies.’”’ This Court has

already concurred in the Magistrate’s determination that

the plaintiffs’ state law cause of action is not preempted by

ERISA because their cause of action arose before they

were participants in the benefit plan and their claims are

not brought under their participation in a benefit plan.

Lastly, the defendant objects to the Magistrate’s

conclusion that this civil action is not preempted and that

the defendant’s motion to dismiss (or for summary judg-

ment) be denied. The Magistrate thoroughly examined and

discussed the preemption issue of state law claims under

ERISA. The Court finds, as supported above, that the

Magistrate’s determination was based on full considera-

tion of the issues. This Court concludes that the defend-

A-42

ant’s last objection is without merit and that the

Magistrate’s finding is correct. The evidence in the case at

bar reveals that the plaintiffs’ claims are not preempted by

ERISA.

The Court concludes that all of the defendant’s objec-

tions are without merit and in no way invalidate the

Magistrate’s Report. The Court therefore adopts and ap-

proves the Report in its entirety. The defendant’s motion to

dismiss is therefore denied.

An appropriate order will be entered.

—

/s) Thomas A. Higgins

Thomas A. Higgins

United States District Judge

8-11-87

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APPENDIX D

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF TENNESSEE

OFFICE OF THE CLERK

800 UNITED STATES COURTHOUSE

NASHVILLE, TENNESSEE 37203

(615) 736-7178

DATE: 9-21-87

RE: 3:86-0423-Higgins

Enclosed is a copy of the following:

ORDER

entered on the docket by the Clerk in compliance with Rule

58 and/or Rule 79(a) of the Federal Rules of Civil Procedure

9-21-897

CLERK, U. S. District Court

BY: BARBARA VAUGHN

DEPUTY CLERK

Copies sent to:

Lara Short 7

Thomas Donnell, Jr.

Peter Reed Corbin

A-44

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF TENNESSEE

NASHVILLE DIVISION

BOBBY WAYNE PERRY, ET AL. |]

]

v. See ] No. 3-86-0423

] Judge Higgins

]

P*I*E NATIONWIDE, INC.

ORDER

The defendant’s motion (filed August 26, 1987) to

amend the order entered August 12, 1987, is granted, and

the order is amended so as to provide:

The Court is of the opinion that this order,

entered August 12, 1987, denying the defendant’s

motion to dismiss involves a controlling question

of law as to which there is a substantial ground

for difference of opinion and that an immediate

appeal from this order may materially advance

the ultimate termination of this litigation.

It is so ORDERED.

ls) Thomas A. Higgins

Thomas A. Higgins

United States District Judge

9-17-87

This document was entered on the

docket in compliance with Rule 58

and/or Rule 79 (a) FRCP on

9/21/87. By: BJV

A-45

APPENDIX E

No. 87-6321

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BOBBY WAYNE PERRY, ET AL.., FILED

MAY 25 1989

Plaintiffs-A ppellees,

v. ORDER

P*I*E NATIONWIDE, INC.,

)

Defendant-Appellant )

)

BEFORE: WELLFORD and NELSON, Circuit Judges;

and McQUADE*, United States District

Judge

The Court having received a petition for rehearing en

banc, and the petition having been circulated not only to

the origfhal panel members but also to all other active

judges of this Court, and no judge of this Court having re-

quested a vote on the suggestion for rehearing en banc, the

petition for rehearing has been referred to the original hear-

ing panel.

* Hon. Richard B. McQuade sitting by designation from the Northern

District of Ohio

A-46

The panel has further reviewed the petition for

rehearing and concludes that the issues raised in the peti-

tion were fully considered upon the original submission and

decision of the case. Accordingly, the petition is denied.

ENTERED BY ORDER OF THE

COURT

/s/ Leonard Green

Leonard Green, Clerk

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.