Opposition Brief — PIE Nationwide, Inc. v. Perry

iz Supreme Lov

FILED

No. 89-324 - op i

In The

Supreme Court of the United States

October Term, 1989

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4

P*I*E NATIONWIDE, INC.,

Petitioner,

BOBBY WAYNE PERRY, PHILIP ANTHONY EDDIE,

ERNEST CORDELL JONES, JAMES A. MATHIS

and GARY R. HYDER,

Respondents.

,%

_

BRIEF IN OPPOSITION TO PETITION FOR WRIT OF

CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE SIXTH CIRCUIT

.

_

JOHN D. ScCHWALB

BREWER, KRAUSE & BROOKS

Suite 2600, The Tower

611 Commerce Street

Nashville, Tennessee 37203

(615) 256-8787

R. STEVEN WALDRON

202 West Main Street

Murfreesboro, Tennessee 37130

(615) 890-7365

Counsel for Respondents

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTION PRESENTED FOR REVIEW

Whether the preemption provision of the Employee

Retirement Income Security Act of 1974 (ERISA), 29

U.S.C. Section 1144 (a), precludes Tennessee State law

causes of action against the employer for fraud in the

inducement, coercion and misrepresentation with regard

to acts leading up to, but prior to the actual commence-

ment or establishment of an employee stock ownership

plan (ESOP)?

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TABLE OF CONTENTS

Page

Question Presented for Review .................... i

Pe I ic oa 6ca 0. Cee R Ee eka be bnnes wan ii

EE ee IE 6 oid 6k hed oe cee eek eee eee iii

Counter-Statement of the Case..................... 1

Reasons for Denying the Writ ..................... 3

CID og on cnc’ ccckensyaesueeaensheneueuaeaee 9

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s

TABLE OF AUTHORITIES

Page

Cases

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

EE ge A ee ee 4

Anderson v. John Morrell & Co. 830 F.2d 872 (8th

AE SS EE ne eer 6

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

Se On te ee ee 6

Chicago and Northwestern Transportation Co. v. Kalo

cee a cee Ge. Soe Wee She CI9OT)................ 5

Dependahl v. Falstaff Brewing Corp. 653 F.2d 1209

(8th Cir.), cert. denied, 454 U.S. 968 (1981)......... 7

Farlow v. Union Central Life Insurance Co. 874 F.2d

eg kas a pbs ce ete ene eceiee sss 7

Fort Halifax Packing Co. v. Coyne 482 U.S. 1 (1987)..... 4

Hines v. Davidowitz 312 U.S. 52 (1940)................ 5

Mackey v. Lanier Collection Agency & Service, Inc.

486 U.S. __, 100 L. Ed. 2d 836 (1988) ........... 4,5

Perez ©. Campeen 402 US. 673 (1971) ................. 5

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

eu ek hawk Maka eee su Vio 4 eae ees sas's 7

Pilot Life Insurance Co. v. Dedeaux 481 U.S. 41

aa yioan Maw Gives ko dbs ens cleus se ues 3

Shaw v. Delta Air Lines, Inc. 463 U.S. 85 (1983) .. 3, 4, 5

Straub v. Western Union Telegraph Co. 851 F.2d 1263 —

thd Sudan kasd bay e veeeesss Psst 6

iv

TABLE OF AUTHORITIES - Continued

Page

STATUTES

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COUNTER-STATEMENT OF THE CASE

This action was brought in 1986 by the respondents

in the United States District Court for the Middle District

of Tennessee at Nashville based upon diversity of citizen-

ship. The respondents are citizens and residents of the

State of Tennessee. The petitioner, their employer, is a

Florida corporation. The Complaint asserted that P*I*E

wrongfully induced respondents to participate in an

employee stock investment plan contrary to Tennessee

state common law. Respondents also allege that their

participation in the stock investment plan was obtained

through fraud, coercion, misrepresentation, promissory

estoppel, lack of consideration and breach of fiduciary

duty. Respondents sought rescission, refund of the

monies which were withheld from them and damages.

P*I*E filed a motion to dismiss alleging that the ESOP

was a plan subject to the Employee Retirement Income

Security Act of 1974 (ERISA), 29 U.S.C. Section 1001, et

seq. and the Internal Revenue Code. As such, the peti-

tioner asserted that its conduct is regulated under the

terms of ERISA and Internal Revenue Code.

For purposes of this appeal, the factual background

of this controversy is, as it relates to the motion to dis-

miss, undisputed. Prior to the offering of the stock invest-

ment plan to the respondents, P*I*E, a wholly owned

subsidiary of I.U. International Corporation, a diversified

service company based in Philadelphia, Pennsylvania,

entered into negotiations for the sale of P*I*E to Maxi-

tron, Inc.

As part of the terms and conditi.ns of the sale it is

believed that a precondition to the sale was that the

respondents and approximately eighty-five (85%) percent

of other eligible employees elected to join and participate

in the stock investment plan. In exchange for participat-

ing in the stock investment plan, employees had to agree

to accept an irrevocable fifteen (15%) percent reduction in

salary for a period of five (5) years beginning January 1,

1986, and ending December 31, 1990. Although the stock ©

prospectus issued by P*I*E with the stock investment

plan indicated there had been negotiations between P*I*E

and Maxitron, it failed to disclose these preconditions for

the sale.

The respondents were employees of P*I*E and were

stationed at P*I*E’s Nashville terminal. Bobby Wayne

Perry had been employed since September, 1973, Philip

Anthony Eddie since April, 1978, Ernest Cordell Jones

since June, 1973, James H. Mathis since May, 1972 and

Gary R. Hyder since July, 1973. On various dates prior to

January 1, 1986, the actual day of which is not material

for purposes of this appeal, the respondents signed the

necessary documents to participate in the stock invest-

ment plan. Their signatures and election to enter the plan

was obtained through coercive statements made by and

through representatives of P*I*E and material misrepre-

sentations made by representatives of P*I*E. There were

misrepresentations in the plan prospectus and certain

coercive actions taken by P*I*E including, but not limited

to, termination of some employees who refused to join in

the stock investment plan.

The District Court referred the petitioner’s motion to

Magistrate Kent Sandidge, III, for report and recommen-

dations. Upon argument, Magistrate Sandidge recom-

mended that the Motion to Dismiss be denied. See,

Pe Wee a,

Appendix B, Petition for Writ of Certiorari, at A-15. The

District Court accepted the ultimate recommendation of

the magistrate but issued its own lengthy opinion deny-

ing the Motion to Dismiss and overruling the objections

filed by the petitioner. See, Id., Appendix C at A-30. The

petitioner timely moved for the appropriate amendment

to the Order so that interlocutory appeal could be sought.”

The respondents later joined in the Motion. The peti-

tioner’s request for permission to appeal was granted by

the United States Court of Appeals for the Sixth Circuit.

The Court of Appeals issued an opinion affirming the

District Court finding that there was no ERISA preemp-

tion with respect to the fraud, misrepresentation, coercion

and promissory estoppe! claims of the respondent. The

Sixth Circuit reversed the district court’s decision on the

issues of breach of fiduciary duty and lack of

consideration.

The petitioner filed a timely Motion for Rehearing En

Banc which was denied. See, Id. at A-45. Thereafter, the

petitioner filed a Motion for Stay of the mandate to allow

the adequate time to file the Petition for Writ of

Certiorari.

7X

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REASONS FOR DENYING THE WRIT

I. THE DECISION OF THE SIXTH CIRCUIT UNITED

STATES COURT OF APPEALS IS NOT INCONSIS-

TENT WITH COURT’S DECISIONS IN SHAW V.

DELTA AIRLINES 463 U.S. 85 (1983), OR PILOT LIFE

INSURANCE COMPANY V. DEDEAUX 481 U.S. 41

(1987).

It is certainly clear that Congress sought to preempt

certain types of state regulation and state law based

claims against the fiduciaries of an employee benefit

plan. Section 514 of the Employee Retirement Income

Security Act provides in part:

The provisions of the sub-chapter . . . shall

supersede any and all state laws insofar as they

may now or hereafter relate to any employee

benefit plan...

29 U.S.C. Section 1144(a). Thus, it is clear that the broad

preemptive provision does not preempt all state laws,

rather it preempts therm only insofar as the laws relate to,

i.e. attempt to regulate the plan. This Court has given a

very broad construction the term “relate to”. However,

the opinions of this Court have not been as broad as

petitioner would suggest. Mackey v. Lanier Collections

Agency and Service, Inc. 486 U.S. __, 100 L. Ed. 2d 836

(1988). Fort Halifax Packing Co., Inc. v. Coyne 482 U.S. 1

(1987).

In the instant petition, the petitioner urges this Court

to extend the preemptive scope of ERISA beyond what it

has previously declined to do as noted in Shaw v. Delta

Airlines, Inc. 463 U.S. 85 (1983). The retreat of the Court in

Shaw is a recognition that the preemption of state law

claims may indeed involve a two-pronged test for pre-

emption. If the state law is independent of some other

federal scheme, preemption exists. If, on the other hand,

it is tied to some similar scheme, then preemption will

exist only insofar as the law prohibits something which is

lawful under ERISA. 463 U.S. at 108-109, Alessi v.

Raybestos Manhattan, Inc. 451 U.S. 504, 524-525 (1981).

Certainly, petitioners are not suggesting that their acts

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which are illegal under Tennessee law would be legal

within the federal law or regulatory scheme.

As noted in Shaw, state action and some state laws

will affect employee benefit plans in a remote or periph-

eral manner. Id. 463 U.S. at 100, See also, Mackey, at 846.

This Court has held that certain criteria must be

reviewed prior to a determination that preemption will

be mandated.

[Wlhen Congress has chosen to legislate pur-

suant to its constitutional powers, then a court

must find local law preempted by federal legis-

lation whenever the “challenged state [law]”

stands as an obstacle to the accomplishment and

execution of the full purposes and objectives of

Congress. Perez v. Campbell 402 U.S. 637, 649

(1971), quoting Hines v. Davidowitz, 312 U.S. 52,

67-68 (1940).

Chicago and Northwestern Transportation Co. v. Kalo Brick &

Tile Co., 450 U. S. 311, 317 (1981). As Congress has deter-

mined, the purpose of ERISA is not to protect the

employer from an attack on its fraudulent acts, rather it is

to protect the beneficiary or employee and to provide the

appropriate remedies where necessary to accomplish this

purpose. 29 U.S.C. Section 1001(b). Preemption of the

respondents’ claims would not be consistent with this

objective nor the prior decisions of this Court.

Il. THE DECISION OF THE COURT OF APPEALS IS

CONSISTENT WITH THOSE OF THE OTHER

CIRCUITS.

Petitioner argues that the Sixth Circuit now conflicts

with numerous decisions of other circuit courts of appeal.

The opinion below, as demonstrated hereinafter, is not in

conflict with those decisions relied upon by the

petitioner.

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

1989) the Fifth Circuit Court of Appeals held that the

Plaintiff’s claim to recover additional pension benefits

was preempted. The basis of Cefalu’s claim was that

“representatives of Goodrich orally assured him that his

‘retirement benefits’ would be greater that the amount

ultimately provided to him.” Id. at 1292 (emphasis

added). The facts in the case at bar are clearly distin-

guishable from the Cefalu case in that Mr. Cefalu sought

greater benefits and an oral modification of a plan. The

oral modification, alone, conflicts with ERISA. Id. at

1296-97, see, also, 29 U.S.C. Section 1102(a)(1).

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The respondents do not seek a modification of the

plan in this case. The respondents seek rescission and

money damages for the fraudulent and coercive conduct

of the petitioner procuring their entrance into a plan that,

but for the wrongful conduct, would not have existed.

In Straub v. Western Union Telegraph Co., 851 F.2d 1262

(10th Cir. 1988), the Tenth Circuit Court of Appeals held

that contractual claims for an increase in pension benefits

were again preempted by ERISA. Id. at 1263-64. Again,

the respondents in the case at hand are not seeking an

increase in pension benefits, and Straub is not in conflict

with the lower court’s decision.

In Anderson v. John Morrell & Co., 830 F.2d 872 (8th

Cir. 1987), the Eighth Circuit Court of Appeals held con-

tractual claims to increase benefits were preempted by

ERISA. However, in so holding, the Court at the outset

noted:

In essence, Anderscn’s claim is that he is enti-

tled, as a matter of contract, to have certain health

benefits added to his welfare benefit plan which is

applicable to him as a retired Morrell employee.

Id. at 873 (emphasis added). Holding the claim to be

preempted, the court refused to draw a substantive dis-

tinction between “an action to recover benefits .. . and an

action to establish . . . benefits.” Id. at 875.

In Farlow v. Union Central Life Insurance Co., 874 F.2d

791 (ith Cir. 1989), the Eleventh Circuit Court of

Appeals held that claims of misrepresentation and negli-

gence as to the benefits to be received and the insurance

coverage that existed in a welfare benefit plan were pre-

empted. Once again, however, is the distinction that the

claim in Farlow was in regard to the benefits of the plan,

not the inducement to join.

In its analysis, the Court explained that unlike state

law claims not preempted by ERISA, “the conduct alleged

... is not only contemporaneous with . . . but the alleged

is intertwined with the refusal to pay benefits.” Id. at 794.

In the case at bar, the misconduct alleged is in no way

related to a refusal to pay benefits. To the contrary, the

respondents’ claims involve the wrongful acts leading up

to, but prior to, the formation of any benefit plan.

In affirming the District Court, the Sixth Circuit

Court of Appeals followed the test set forth in Dependahl

v. Falstaff Brewing Corp., 653 F.2d 1208 (8th Cir.), cert.

denied, 454 U.S. 968 (1981). Perry v. P*I*E Nationwide, Inc.

872 F.2d 157, 162 (6th Cir. 1989). In deciding that ERISA

provided no remedy for the wrongs committed by the

Petitioner, the court held that the preemption provisions

of ERISA were not applicable under these facts. Id.

Important to the holding is the preemption of two claims

which the court held did “relate to the plan.” Id. Implicit

in this holding is the recognition by the Court that if

rescission is decreed by the district court, then the claims

obviously do not relate to the plan. One cannot seek

interfund remedies available only to participants if one is

not a participant.

In summary, the holding by the Sixth Circuit Court of

Appeals in this case does not represent a split of author-

ity among the Circuits regarding the preemption provi-

sion of ERISA. The District and Appellate Courts found

distinguishing facts prevalent in this action which justi-

fiably preclude preemption of the respondents’ claims.

The respondents’ have not sought benefits under a

plan nor “related to” a plan within the meaning of ERISA.

The lower court’s recognition of the claim of respondents

is not in conflict with the prior decisions of this Court or

any lower court.

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CONCLUSION

WHEREFORE, for the foregoing reasons, Respon-

dents Bobby Wayne Perry, Philip Anthony Eddie, Ernest

Cordell Jones, James A. Mathis and Gary R. Hyder,

respectfully request the Petition for Writ of Certiorari be

denied.

Respectfully submitted,

Joun D. ScHWALB

BREWER, KrRAusE & BROOKS

Suite 2600, The Tower

611 Commerce Street

Nashville, TN 37203

(615) 256-8787

R. STEVEN WALDRON

202 West Main Street

Murfreesboro, Tennessee 37130

(615) 890-7365

Attorneys for Respondents