Opposition Brief — California Division of Apprenticeship Standards v. Hydrostorage, Inc.

No. 89-1985

IN THE

Supreme Court of the United States

October Term, 1989

CALIFORNIA DIVISION OF

APPRENTICESHIP STANDARDS:

GAIL W. JESSWEIN,

Chief of the Division of Apprenticeship Standards:

CALIFORNIA APPRENTICESHIP COUNCIL;

and NORTHERN CALIFORNIA BOILERMAKERS

LOCAL JOINT APPRENTICESHIP COMMITTEE,

Petitioners,

V.

HY DROSTORAGE, INC.,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

RESPONDENT'S BRIEF IN OPPOSITION

KAREN E. ForD

(Counsel of Record)

JAMES P. BAKER

LITTLER, MENDELSON, FastTiFF & TICHY

A Professional Corporation

650 California Street, 20th Floor

San Francisco, California 94108-2693

Telephone: (415) 433-1940

Attorneys for Respondent

eT AVAILABLE COPY

~~

l

QUESTION PRESENTED

1. Whether the State of California’s conduct in enforcing

California Labor Code section 1777.5 as applied in this case

is preempted by the Employee Retirement Income Security

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

TABLE OF CONTENTS

QUESTION PIRESEN TDD oviscinscccvccsconssccnassocecersveeceee.

PARTIES TO THE PROCEEDING............................

COUNTERSTATEMENT OF THE CASE ................

. STATEMENT OF THE CASE. ..cciccéciscsccc2

A. The Decision Bebow.....c...:...ccccccoscoscssccessssce.

SUMMARY OF ARGUMENT......0...0...cccccccccees

REASONS WHY THE PETITION SHOULD

SOEs RORF TRIED soctensistaksccenceanacucssamhatece an

A. Neither The Decision Below Nor The

Record Raises The First Question Presented

Ee TO Pe sci sntioeaxiecee eee

B. The “Purports To Regulate” Question

Raised By Petitioners Runs Directly Con-

trary To The Well Established Decisions Of

This Court And Is Completely Irrelevant To

TORS ROB ccc cane les

C. There Is No Conflict Between The Circuits

Which Would Affect The Decision Below...

D. Petitioners’ “Market Participant” Theory Is

Without Merit And Has Previously Been

Reeth Dy TI Ci kis sesssienccnsstnsisacdicinee

FE. ERISA Section 514(d) And The Fitzgerald

Act Do Not Save California Labor Code

Section 1777.5 From Preemption As Ap-

gaes tn TH CO viii

CII IG wniscsnisdasncntaionae aaa eee

IV.

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13

14

19

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TABLE OF CASES

AND OTHER AUTHORITIES CITED

CASE PAGE(S)

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

Nia cosuaccseehsnensnnnncovenssensses 14

Allen v. Wright, 468 U.S. 737 (1984)... 8

Caterpillar, Inc. v. Williams, 482 U.S. 386 (1987) 13

Franchise Tax Bd. of the State of California

v. Construction Laborers Vacation Trust for

Southern California, 463 U.S. | (1983)...... 17, 20

Hydrostorage, Inc. v. Northern California Boiler-

makers Local Joint Apprenticeship Committee,

et al., 891 F.2d 719 (9th Cir. 1989) 0.0... passim

Lane v. Goren, 743 F.2d 1337 (9th Cir. 1984) .... 12

Local Union 598, Plumbers & Pipefitters Industry

Journeymen & Apprentices Training Fund v.

J.A. Jones Construction Co., 846 F.2d 1213

(9th Cir.), afd, os ., 09 5. Ct. 210

a 4,10, 11, 13

Mackey v. Lanier Collections Agency and Service,

Inc. 466 US. 825 (1988) ............... 10, 13, 21, 22

McMahon v. McDowell, 794 F.2d 100 (3rd Cir.),

cert. denied, 479 U.S. 971 (1986)..................... 21

Metropolitan Life Insurance Company v Taylor,

a. <caccnsstennennsaseenesesenene 13

Pilot Life Insurance Company v. Dedeaux, 481

Neon comsnnannsatnenscitconse 13

Shaw v. Delta Airlines, Inc., 463 U.S. 85

aie clnnkshaninsadansnseasnnverses passim

Solomon vy. Klein, 770 F.2d 352 (3rd Cir. 1985) . 23

Stone and Webster Engineering Corporation v

Ilsley, 690 F.2d 323 (2nd Cir. 1982), aff'd sub

nom., Arcudi v. Stone and Webster Engineering

SE EE, BAPE E POS) vescevvnssscnsnseoncaseneess 13

Wisconsin Dep’t of Industry, Labor and Human

Relations v. Gould, Inc., 475 U.S. 282 (1986)..

Nee aaa icusunveatveasixeossnnssee 6, 16

iV

OTHER AUTHORITIES PAGE(S)

Fe I IIE nccanccniscnrcssssneasixvbecennabensnenie 5, 20

A 5, 19, 22

Gs I cesses cnncnisaataknimavsauausatabes iv

es Oe eR etesnenscesensexsncvacasasiasvenabacs 74

Fe rs Be OO rasascsncoscnnosanciasdccsdantssblasesecsns 12

Be ee I ittineecntasencessaceusacccaomckesas 5,19

120 Cong. Rec. 29,933 (1974) .....................ccccceee 19

120 Come, Rac. 29.942 C1974) ........cccccocccccsccsoccces 18

ee) ET fg 5 Bee ene passim

eR sy Ay JR nee ana 15

I I i coscnineaseusennncesnanbuanee 23

ee I a sacsusacunanennbeantonanasens 24

ERISA Section 514(a)..............000... steel passim

Be I BRR oincenacestncncersascsaracennseassnazncen 24

ERISA Section 514(c)(2)....................... 9, 10, 13, 19

Bre RI SEND ooo cs ccccsccsncsccsncsoscccnesens passim

Vv

PARTIES TO THE PROCEEDING

The named Appellants in the United States Court of

Appeals for the Ninth Circuit were the California Division

of Apprenticeship Standards (“DAS”): Gail W. Jesswein,

Chief of the Division of Apprenticeship Standards; the Cali-

fornia Apprenticeship Council; and the Northern California

Boilermakers Local Joint Apprenticeship Committee

(“JAC”).

The Appellee in the Court of Appeals was Hydrostorage,

Inc., a Tennessee corporation. Hydrostorage, Inc. is a wholly

owned subsidiary of the Pitt-Des Moines, Inc. Pitt-Des

Moines has no parent corporation. Pitt-Des Moines’s non-

wholly owned subsidiaries are Oregon Culvert Co., Inc. and

Canadian Des Moines Industries Limited.

No. 89-1985

IN THE

Supreme Court of the United States

October Term, 1989

CALIFORNIA DivISION OF APPRENTICESHIP STANDARDS:

Gai W. JESSWEIN,

Chief of the Division of Apprenticeship Standards;

CALIFORNIA APPRENTICESHIP COUNCIL;

and NORTHERN CALIFORNIA BOILERMAKERS

Loca. JOINT APPRENTICESHIP COMMITTEE,

Petitioners,

¥,

HyYDROSTORAGE. INC., ;

Respondent.

ON PETITION FOR WRIT

OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

RESPONDENT'S BRIEF IN OPPOSITION

The Respondent, Hydrostorage, Inc., respectfully re-

quests that this Court deny the Petition for Writ of Certiorari,

seeking review of the Ninth Circuit’s opinion in this case.

That opinion is reported at 891 F.2d 719.

2

COUNTERSTATEMENT OF THE CASE'

I

STATEMENT OF THE CASE

In summary, Hydrostorage is a Tennessee corporation

which performs public works projects in various states includ-

ing California. Hydrostorage is not signatory to an agreement

with the Boilermakers Union and the Boilermakers Union

has never been certified as the bargaining representative of

its employees. Pursuant to California Labor Code section

1777.5, the Division of Apprenticeship Standards and the

other Petitioners in this action attempted to force and require

Hydrostorage to participate in the apprenticeship training

program operated by the Boilermakers Union. Petitioners

sought to compel Hydrostorage to execute an agreement

to train apprentices with the Boilermakers apprenticeship

program (known as a DAS-7) and to employ apprentices

referred from the Boilermakers hiring hall in accordance with

the Boilermakers apprenticeship program. The Boilermakers

apprenticeship program would require Hydrostorage to

employ one apprentice for every five journeymen on the job.

The DAS-7 agreement to train apprentices also sets the wages,

hours and working conditions for apprentices, incorporating

by reference the terms and conditions of the local collective

bargaining agreement negotiated by the Boilermakers Union

and various union signatory companies.

There was a serious question presented as to whether

the project in question was of sufficient size to meet the

statutory minimum for the employment of apprentices.

Nonetheless, Hydrostorage was fined and debarred for its

failure to submit a DAS-7 form and a request for approval

to train apprentices from the apprenticeship program oper-

ated by the Boilermakers Union. Hydrostorage challenged

the actions of the Division of Apprenticeship Standards and

the other Petitioners on the grounds that such state law

' Hydrostorage, Inc. (“Hydrostorage”) adopts the Statement of the

Case found in the opinion of the United States Court of Appeals for the

Ninth Circuit at Hydrostorage, Inc. v. Northern California Boilermakers

Local Joint Apprenticeship Committee, 89\ F.2d 719 (9th Cir. 1989), which

is reprinted in the separately bound appendix to Petitioner's certiorari

petition (hereafter referred to as “Pet. App.) at pages 2a-9a.

3

mandates are preempted by ERISA and on the further ground

that the actions of the Petitioners were no more than an

attempt to force Hydrostorage to become bound involuntarily

to the results of collective bargaining by the Union. The

District Court ruled in favor of Hydrostorage on both issues.

The Ninth Circuit upheld the decision of the District Court

on the issue of ERISA preemption and did not reach the

question of NLRA preemption.

A. The Decision Below.

In Hydrostorage, the Ninth Circuit summarized ERISA’s

connection to apprenticeship as follows:

ERISA governs “employee benefit plans,” which

are statutorily defined as plans that are either an

“employee welfare benefit plan,” an “employee pen-

sion benefit plan,” or both (29 U.S.C. § 1002(3);

Morash, 109 S.Ct. at 1672). The statute defines

“employee welfare benefit plan” as follows: “any

plan, fund, or program which was heretofore or is

hereafter established or maintained by an employer

or by an employee organization, or by both, to

the extent that such plan, fund or program was

established or is maintained for the purpose of

providing for its participants or their beneficiaries,

through the purchase of insurance or otherwise, (A)

medical, surgical, or hospital care or benefits, or

benefits in the event of sickness, accident, disability,

death or unemployment, or vacation benefits, ap-

prenticeship or other training programs, or day care

centers, scholarship funds, or prepaid legal

services....” (29 U.S.C. § 1002(1); emphasis

added). [Footnote omitted. ]}

ERISA contains a very broad preemption clause.

Section 514(a) of ERISA. as codified at 29 U.S.C.

§ 1144(a), provides that ERISA “shall supersede

any and all State laws insofar as they may now

or hereafter relate to any employee benefit plan

described in section 1003(a) of this title... .(29

U.S.C. § 1144(a) (emphasis added).) “State laws”

are defined as “all laws, decisions, rules, regulations

4

or other State action having the effect of law, of any

State.” (29 U.S.C. § 1144(c)(1).) A “state” is defined

as “a State, any political subdivisions thereof, or

any agency or instrumentality of either, which pur-

ports to regulate, directly or indirectly, the terms

and conditions of employee benefit plans covered

by this subchapter.” (29 U.S.C. § 1144(c)(2).)

Hydrostorage, 891 F.2d at 726, Pet. App. at pp. |4a-1 5a.

After setting forth the above-quoted statutory basis, the

Ninth Circuit concluded that the case before it involved an

ERISA plan. Under authority of Local Union 598, Plumbers

& Pipefitters Industry Journeymen & Apprentices Training

Fund v. J.A. Jones Construction Co., 846 F.2d 1213, 1217

(9th Cir.), aff'd, US. , 109 S.Ct. 210 (1988),

and the parties’ stipulation, the court easily concluded that

the Boilermakers apprenticeship trust fund is an ERISA plan.

The court also separately held that the written Apprenticeship

Standards which set out the terms and conditions of the

Boilermakers apprenticeship program constitutes an em-

ployee benefit plan under ERISA. Hydrostorage, supra, Pet.

App. pp. | 7a-19a.

After concluding that the case does involve ERISA cov-

ered employee benefit plans, the court then reviewed whether

the administrative order challenged was a “state law” that

“relate[s] to” such a plan. Pet. App. at 21a. The court quickly

determined that the order was a “state law” under ERISA.

Id. The court went on to conclude that the order “clearly

‘relates to’ the Standards, which are part of an ERISA plan.”

Id. at p. 22a. The order penalized Hydrostorage for failing to

sign the DAS-7 agreement under which Hydrostorage would

have been bound to the Boilermakers Apprenticeship Stan-

dards. As such, the court concluded that “the order un-

doubtedly ‘relates to” an ERISA plan in the sense that the

order has a ‘connection with or reference to’ the Standards.”

Id. The court also found that the order “ ‘purports to regulate,

indirectly or directly,’ an ERISA plan.” Jd. It stated:

Again, the order’s purpose is to require Hydrostor-

age and other contractors on public works projects

to become bound by the Standards, an ERISA plan.

5

[Citation] The order is designed to enforce the

terms of an ERISA plan. The same is true of the

statute upon which the order is based, California

Labor Code § 1777.5. Section 1775.5 is aimed at

enforcing the terms of an ERISA plan, the Standards,

and compelling nonsignatory contractors to join or

comply with such plans. The underlying statute is

therefore one which is specifically designed to affect

employee benefit plans. [Citation.] We therefore

conclude that the administrative order falls within

ERISA’s preemption clause.

Id. at pp. 22a-23a (emphasis added).

Finally, the court concluded that ERISA section 514(d)

did not save the order from preemption. /d. at 24a-28a. That

section, codified at 29 U.S.C. § 1144(d), states that courts

should not construe ERISA “to alter, amend, modify, invali-

date, impair, or supersede any law of the United States... or

any rule or regulation issued under any such law.” In particu-

lar, the court rejected a claim that the state apprenticeship

standards had been incorporated into the federal regulatory

scheme under the Fitzgerald Act, 29 U.S.C. § 50. Id. at 25a.

In reaching its conclusion, the Ninth Circuit adopted the

district court’s reasoning. Jd. The district court summarized:

The Fitzgerald Act merely directs the Secretary of

Labor “to formulate and promote the furtherance

of labor standards ...to safeguard the welfare of

apprentices” and related objectives. (29 U.S.C.

§ 50.) The implementing regulations state that their

purpose is “to set forth labor standards to safeguard

the welfare of apprentices, and to extend the appli-

cation of such standards by prescribing policies and

procedures concerning the registration for certain

Federal purposes, [of] acceptable apprenticeship

programs.” (29 C.F.R. § 29.1(b).) Thus the regula-

tions relate only to eligibility for federal registration.

Neither they nor the Act itself contemplate enforce-

ment mechanisms; Section 29.11 merely provides

for the voluntary adjustment of complaints before

either federal or state agencies. Assuming 1777.5

was adopted in furtherance of the objectives of the

Fitzgerald Act, it clearly is not an enforcement

mechanism of federal law and to the extent orders

under this section are preempted by ERISA, federal

law is not impaired.”

Pet. App. at p. 38a.

6

Il

SUMMARY OF ARGUMENT

Petitioners seek review of the decision below on funda-

mentally three grounds. First, Petitioners contend that this

Court should grant review in order to resolve an alleged

conflict in the circuits as to whether the standard for ERISA

preemption requires that statutes not only relate to, but also

purport to regulate ERISA plans. As set forth in full below,

there really is not a conflict in the circuits. Rather, Petitioners

have relied upon theories asserted several years ago which

have since been called into serious question, if not eradicated

by subsequent decisions of this Court. More to the point,

this issue is irrelevant to this case. It is unquestionable that

the statute here not only relates to ERISA plans but also

purports to regulate them. Accordingly, under either test the

state law at issue here would be preempted. Thus, the

distinction is irrelevant and cannot provide a basis for review.

The second issue raised by Petitioners is whether the

State law at issue here is indeed a “regulation” or whether it

simply constitutes an exercise of choice by the state as to

which contractors it chooses to do business with. As discussed

in full below, this so-called “market participation” argument

fails for two reasons. First, it is factually inaccurate. The

Statute at question here does not involve eligibility for bidding

but rather direct regulation of contractors in the performance

of public works projects. In fact, the statute in question does

not even come into effect until affer the contracts are already

let. The regulatory scheme involves ongoing monitoring

by the state and encompasses penalties such as fines and

‘debarment orders which are totally inconsistent with Petition-

er’s so-called “market participant” theory. Moreover, the

precise argument Petitioners raise has been squarely rejected

by this Court in Wisconsin Dep’t of Industry, Labor and

Human Relations v. Gould, Inc., 475 U.S. 282 (1986).

Finally, Petitioners argue that the state law at issue here

is saved from preemption by the existence of a federal statute,

the Fitzgerald Act. Even a cursory glance at the Fitzgerald

Act reveals the frivolous nature of this argument. The

7

Fitzgerald Act is only four sentences in length and has no

substantive provisions at all. It is simply a general policy

statement acknowledging the benefits of apprenticeship pro-

grams. It was also enacted some 37 years before ERISA and

can hardly be viewed as a Congressional limitation on the

scope of ERISA. The federal regulations on which Petitioners

rely are also irrelevant here. According to their terms, these

regulations are established for the sole purpose of setting out

federal labor standards concerning apprentices and the only

role of the state is as an agent for the federal government

in verifying compliance with these federal standards and

registering programs for the U.S. Department of Labor. Most

significantly nothing in the federal law requires or even hints

at the requirement set out by the state law here. As this Court

held in Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983), a

state statute which is enacted under the umbrella of a federal

enabling act is safe from preemption only to the extent that

it is a mechanism for enforcing the affirmative requirements

of federal law. Where as here the state statute imposes

requirements not imposed by federal law, those requirements

are subject to preemption. Thus, the federal law exemption

argument is likewise without merit.

Hil

REASONS WHY THE PETITION SHOULD BE DENIED

A. Neither The Decision Below Nor The Record Raises The

First Question Presented In The Petition.

The first Question Presented in the Petition (page (i)) is:

Whether the states are precluded by the preemption

provisions of the Employee Retirement Income

Security Act of 1974 (“ERISA”), 29 U.S.C. 1144,

from requiring that public works contractors agree

to provide training opportunities for apprentices in

accord with state-prescribed standards.

8

The Ninth Circuit, however, did not decide that question

in this proceeding and the record here will not support a

determination of that question in this case. The Ninth Circuit

explained:

We conclude that the Council's order is not saved

from preemption by Section 514(d) of ERISA. We

also hold that as applied in the Council’s order,

[Labor Code] Section 1777.5 is not saved from

ERISA preemption. However, like the district

court, we do not address whether Section 1777.5 in

its entirety is preempted by ERISA. 685 F. Supp.

at 723.

Pet. App. at pp. 27a-28a. The Ninth Circuit did not even

find that the statute in question, California Labor Code

section 1777.5, was preempted, but only that as it was applied

in this case it was preempted. Id. Put simply, the Ninth

Circuit did not reach the question of whether and to what

extent states are precluded by the preemption provisions of

ERISA from requiring that public works contractors agree to

provide apprenticeship training in accordance with state-

mandated standards.

To invoke this Court’s Article III powers, Petitioners

must demonstrate standing in a constitutional sense. To

demonstrate its standing, Petitioners must allege and prove

three elements: (1) personal injury; (2) fairly traceable to the

Defendants’ allegedly unlawful conduct; and (3) likely to be

redressed by the requested relief. A//en v. Wright, 468 U.S.

737, 751 (1984).

The record here does not permit resolution of the first

Question Presented by the Petitioners because the order

below is limited to the enforcement mechanisms of California

Labor Code section 1777.5 as they were applied in this case.

Here, the state did not simply set minimum standards for

employment and training of apprentices. It mandated that

a particular benefit be provided, it selected the specific union-

sponsored program in which Hydrostorage was compelled to

participate and mandated by regulation and by enforcement

of the Standards every detail of employment and training of

9

apprentices. This is not a minimum standards requirement

but a mandated program dictated in its every detail by the

State. It is this mandate that the employer sign an agreement

with and participate in a specific program selected by the

state which was held to be preempted. The record in this

case is barren of any issue as to whether ERISA preempts

States from setting generally applicable minimum employ-.

ment requirements on public works projects. Thus, the first

“Question Presented” argued by Petitioners simply cannot

be resolved in the context of this case. The first Question

Presented is nothing more than a pure hypothetical which

was neither presented by the facts of this case nor discussed

in the courts below.

B. The “Purports to Regulate” Question Raised By Petitioners

Runs Directly Contrary To The Well Established Decisions

Of This Court And Is Completely Irrelevant To This

Action.

Petitioner devotes four pages to the argument that the

decision below should be reviewed in order to “resolve the

substantial confusion that has developed in the court of

appeals law over the proper role—and the proper construc-

tion—of ERISA section 514(c)(2) in preemption litigation

generally.” Pet. at p. 11. The issue Petitioner refers to is

whether or not a statute must not only “relate to” but also

must “purport to regulate” ERISA plans for ERISA preemp-

tion to apply.

The attempt to insert this additional requirement into

the standard for ERISA preemption is directly contrary to

numerous decisions of this Court. As this Court pointed out

in Shaw, 463 U.S. at 96-98, the statutory test is simply

whether the state law in question “relates to” an employee

benefit plan:

Congress used the words “relate to” in Section

514(a) in their broad sense. To interpret Section

514(a) to preempt only state laws specifically de-

signed to affect employee benefit plans would be to

ignore the remainder of Section 514.

**“* *

10

A law “relates to” an employee benefit plan, in the

normal sense of the phrase, if it has a connection

with or a reference to such a plan.

The narrowing of the standard proposed by Petitioners here,

requiring that the statute also “purport to regulate” ERISA

plans, flies in the face of this simple and straightforward

standard. Furthermore, it is clear that this Court has never

applied such a limitation. For example, in a very recent

decision, Mackey v. Lanier Collections Agency and Service,

Inc., 486 U.S. 825 (1988), a unanimous Supreme Court held

that a state statute which exempted ERISA benefit funds

from garnishment was preempted by ERISA. Such a statute

does not “purport to regulate” ERISA plans and, indeed, was

an attempt to protect and exclude ERISA plans from state

regulation. Nonetheless, the statute was held preempted

because, like the state law in question here, it made specific

reference to and was specifically designed to affect ERISA

plans. Id. at 829. Thus, the “confusion” which Petitioners

assert simply does not exist. A statute which relates to ERISA

plans is preempted and there is no requirement that it also

“purport to regulate” such plans.’

Even more significantly, the distinction itself is irrele-

vant in this case because, as the court below quite properly

found, the order challenged here meets the “purports to

regulate” test. Under the narrowest application of the statute

urged by Petitioners, the order would still be preempted by

ERISA because it undeniably “purports to regulate” appren-

ticeship plans.

This Court_in its summary affirmation of Local Union

598, Plumbers & Pipefitters Journeymen and Apprentices

Training Fund v. The J. A. Jones Construction Co., 846 F.2d

? The strained statutory construction upon which Petitioners rely is

simply without merit. The “purports to regulate” language is drawn from

the definition of a state agency. It is not part of the preemption section of

ERISA. It is set out in the definitions of terms. More significantly, the

term that Section 514(c\(2) defines (“state” as opposed to “state law”) is

not used in Section 514(a). The definition of a state as opposed to a state

law is simply not an issue in interpreting Section 514(a). Accordingly,

Petitioners’ entire argument is essentially an irrational reading of the

statutory language.

11

1213 (9th Cir.), affd, USS. 109 S. Ct. 210 (1988),

resolved this same issue as to a very similar statute. In /. A.

Jones, the Ninth Circuit specifically held that ERISA pre-

empts the State of Washington’s prevailing wage law which

required contributions to an apprenticeship training fund

because such mandatory participation “purports to regulate”

ERISA benefits. The statute and the plan were very similar

to those presented in Hydrostorage. In J. A. Jones, the Ninth

Circuit concluded:

However, the strength of the state interest is of no

consequence where the state law clearly “purports

to regulate” an employee benefit plan. “Jn order to

avoid being preempted, a state law in addition to

being an exercise of traditional police powers must

also affect the plan” in too tenuous, remote, or

peripheral a manner to warrant a finding that “the

law relates to” the plan. Gilbert, 765 F.2d at 327

(quoting Shaw, 463 U.S. at 100 n.21, 103 S. Ct. at

2901, n.21). Such, assuredly, is not the case here.

* * *

In conclusion, the clear and express purpose of

Washington Revised Code section 39.12.010(3) is to

govern employee contributions to employee benefit

plans, including apprenticeship training plans. The

statute on its face “purports to regulate” employee

benefit plans.

Td. at 1221.

In the decision below, the Ninth Circuit explained:

Second, we conclude that the administrative order

“purports to reguiate, indirectly or directly,” an

ERISA plan. Again, the order’s purpose is to require

Hydrostorage and other contractors on public works

projects to become bound by the Standards, ar ERISA

plan. See Metropolitan Life [Insurance Co. v. Massa-

chusetts], 471 U.S. [724,} 739, 105 S. Ct. at 2388

(Massachusetts law requiring ERISA plans to pro-

vide minimum coverage for mental health care ex-

penses “bears indirectly but substantially” on plans

since “it requires them to purchase the mental-health

benefits specified in the statute”). The order is

12

designed to enforce the terms of an ERISA plan. The

same is true of the statute upon which the order was

based, California Labor Code 1777.5. Section 1777.5

is aimed at enforcing the terms of an ERISA plan,

the Standards, and compelling nonsignatory contrac-

tors to join or comply with such plans. The underlying

statute is therefore one which is specifically designed

to affect employee benefit plans. [Citation omitted.]

We therefore conclude that the administrative order

falls within ERISA’s preemption clause.

Pet. App. at pp. 22a-23a (emphasis added).

A law “purports to regulate” an employee benefit plan if

it attempts “to reach in one way or another” the “terms and

conditions of employee benefit plans.” Lane v. Goren, 743

F.2d 1337, 1339 (9th Cir. 1984) (quoting 29 U.S.C. section

1144(c)(2)). It is clear that by mandating Hydrostorage to

Participate in the Boilermakers’ apprenticeship program and

comply with the Boilermakers’ Apprenticeship Standards in

the course of performance of public contracts, the State of

California is “reaching in one way or another” the terms and

conditions of an employee benefit plan. Failure to comply

with these requirements subject the Respondent to a fine and

a debarment order. California Labor Code section 1777.5

obliges employers to make contributions and to follow the

other terms of the apprenticeship plan which is enforced by

a state administrative agency, the Division of Apprenticeship

Standards (“DAS”). The DAS undertakes ongoing regulation

during the completion of the public work project of the

number of apprentices and the terms and conditions under

which they are employed. It cannot be disputed that this

constitutes administrative regulation by the state.

Thus, in the decision below, Petitioners have already

received the benefit of what they perceive to be the narrow

“purports to regulate” analysis. Accordingly, the distinction

Petitioners urge is irrelevant here. The czder at issue here is

preempted under either test.

13

C. There s No Conflict Between The Circuits Which Would

Affect The Decision Below.

Petitioners have also failed to show any conflict or

real confusion among the circuits concerning whether the

standards for ERISA preemption are affected by the definition

of a state agency set out in Section 514(c)(2). In support of

their argument that the definition of a state agency set out in

Section 514(c)(2) should be read to limit the scope of ERISA

preemption under Section 514(a), Petitioners rely primarily

upon three cases, two from the Ninth Circuit and one from

the Second Circuit, decided in 1984 and 1986. Hydrostorage

submits that the reasoning of these cases has clearly been

overruled by more recent decisions of this Court which have

held that the test is simply whether the state statute “relates

to” ERISA plans and not whether the statute also “purports

to regulate” such plans. The holdings in all of the recent

decisions of this Court substantially undermine, if not eradi-

cate, the theories discussed in the older decisions upon which

Petitioners rely. See Mackey, 486 U.S. 825; Caterpillar,

Inc. v. Williams, 482 U.S. 386 (1987); Pilot Life Insurance

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

Insurance Company vy. Taylor, 481 U.S. 58 (1987). All of the

other decisions upon which Petitioners rely simply hold, in

agreement with the Ninth Circuit Court of Appeals in J.A.

Jones, 846 F.2d 1213, that any statute which regulates ERISA

benefits, by definition, also relates to the plans. See, e.g.,

Stone and Webster Engineering Corporation vy. Ilsley, 690

F.2d 323 (2d Cir. 1982), afd sub nom., Arcudi v. Stone and

Webster Engineering Corp., 463 U.S. 1220 (1983). Thus, the

asserted “conflict between the circuits” is non-existent. The

few older decisions supporting the “purports to regulate”

limitation are of questionable validity and the entire theory

appears to have been abandoned, at least in practice, by the

more recent decisions of this Court and the courts of appeal.

The most Petitioners can muster concerning the “dis-

array” and “confusion” among the circuits is the following:

The Sixth Circuit, without deciding the question,

has criticized the view that “purports to regulate”

language of section 514(c)(2) provides a substantive

14

limitation on the scope of section 514(a). [Citation

omitted.]

Pet. at p. 14.n.12 (emphasis added). Such a tenuous disagree-

ment on an issue which is not even relevant to the outcome

below can hardly provide a proper ground for review by this

Court.

Petitioners’ attempt to distinguish this Court’s decision

in Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504 (1981),

is unavailing. See Petition at p. 12 n. 9. In Alessi, this Court

explained the scope of ERISA section 514(c)(2) as follows:

It is of no moment that New Jersey intrudes indirec-

tly, through a workers’ compensation law, rather

than directly, through a statute called “pension

regulation.” ERISA makes clear that even indirect

state action bearing on private pensions may en-

croach upon the area of exclusive federal concern.

For the purposes of the preemption provision,

ERISA defines the term “State” to include: “a State,

any political subdivision thereof, or any agency or

instrumentality of either, which purports to regu-

late, directly or indirectly, the terms and conditions

of employee benefit plans covered by this sub-

chapter.” 29 U.S.C. section 1144(c)(2) (emphasis

added.) ERISA’s authors clearly meant to preclude

the States from avoiding through form the sub-

stance of the preemption provision.

Id. at 525 (emphasis in original).

Similarly, the State of California’s attempt to impose

the terms and conditions of an ERISA plan, in this case

collectively bargained Apprenticeship Standards, upon non-

Signatory contractors must, at minimum, be said to be a

Statute indirectly regulating such ERISA plans.

D. Petitioners’ “Market Participant” Theory Is Without

Merit And Has Previously Been Rejected By This Court.

Petitioners argue that their actions in connection with

Hydrostorage and indeed all of Labor Code Section 1777.5

are not a “regulation” but simply reflect the state exercising

15

freedom of choice as to which contractors it chooses to deal

with. In rejecting this “market participant” argument, the

Ninth Circuit explained:

First, as the Supreme Court observed in rejecting a

similar argument in a case involving NLRA preemp-

tion, Wisconsin Department of Industry, Labor and

Human Relations v. Gould, 475 U.S. 282, 106 S.

Ct. 1057, 89 L. Ed. 2d 223 (1986), “the ‘market

participant’ doctrine reflects the particular concerns

underiying the Commerce Clause, not any general

notion regarding the necessary extent of state power

in areas where Congress has acted.” Id. at 289, 106

S. Ct. at 1062; see also id. at 290, 106 S. Ct. at 1063

(“what the Commerce Clause would permit states to

do in the absence of the NLRA is...an entirely

different question from what states may do with the

Act in place.”)

Pet. App. at 23a.

Petitioners’ “market participant” argument completely

misses the point. Although California is a party to contracts

in the public works market, it is also engaged in active

regulation of public works contractors. As a review of Labor

Code Section 1777.5 reveals, it is designed to regulate conduct

and does not even purport to set qualifications for bidders.

By mandating that after executing a contract to perform a

public works project, Hydrostorage must sign an agreement

with, participate in, and make contributions to the Boilermak-

ers apprenticeship plan, the State is regulating the Company’s

conduct.

Further, the “market participation” argument ignores

the fact that debarment is not the only penalty. Section 1777.7

provides for fines and other penalties for non-compliance.

The argument also ignores the fact that Section 1777.5

subjects the employer to mandatory ongoing obligations.

The employer has an ongoing statutory obligation to make

contributions and to follow the other terms of the plan which

is enforced by a state administrative agency, the DAS. The

DAS is not an awarding body and does not award or enter

into public works contracts. Rather, the role of the DAS is

solely to regulate the conduct of public works contractors

with regard to apprenticeship. The DAS undertakes ongoing

16

regulation of the number of apprentices and the terms under

which they are employed. Such ongoing administrative

regulation can hardly be characterized as a simple market

choice between one contractor and another. Indeed, the

provisions of section 1777.5 by their terms do not take effect

until after the contract has been awarded. In short, Petitioners’

contention that the State of California’s debarring Hydrostor-

age and assessing fines against Hydrostorage are no more than

“market participation” by the State of California stands

reason on its head. Moreover, numerous courts have rejected

such arguments, holding that where a state conditions doing

business with a private entity on compliance with statutory

requirements it is regulating conduct.

Finally, this “market participation” argument has been

squarely rejected by this Court. Petitioners dance in and

around this Court’s decision in Gould, 475 U.S. 282, without

ever fully quoting the most pertinent part of that decision:

In any event, the “market participant” doctrine

reflects the particular concerns underlying the Com-

merce Clause, not any general notion regarding the

necessary extent of state power in areas where Con-

gress has acted. In addition to authorizing congres-

sional action, the Commerce Clause limits state

action in the absence of federal approval. ... The

NLRA, in contrast, was designed in large part to

“entrust administration of the labor policy for the

nation to a centralized administrative agency.”

Garmon, 359 U.S. at 242, 79 S. Ct. at 778. ... What

the Commerce Clause would permit States to do in

the absence of the NLRA is thus an entirely different

question from what states n.ay do with the Act in

place. ... [Government occupies a unique position

of power in Our society, and its conduct, regardless

of form, is_ rightly subject to _— special

restraints. ... The Act treats state action differently

from private action not merely because they freq-

uently take different forms, but also because in

our system States simply are different from private

parties and have a different role to play.

Id. at 289-290 (emphasis added) (citations omitted).

17

What the Commerce Clause would permit states to do

in the absence of ERISA is an entirely different question from

what states may do with the Act in place. By mandating that

Hydrostorage participate in the Boilermakers’ apprenticeship

program, the State of California is regulating employee benefit

plans, a form of state regulation prohibited by the express

terms of ERISA. Accordingly, as this Court held in Gould,

and as the Ninth Circuit held below, Petitioners’ market

participation argument is without merit.

Even according to Petitioners’ own analysis, the “market

participant” exception does not apply here. Petitioners argue

that the three principles in Gould are: (1) Congressional

purpose based on an examination of the statuie in question;

(2) whether the state has a legitimate procurement purpose;

and (3) maintaining a national marketplace in which parties

can freely operate. Pet. at pp. 17-18.

Petitioners’ market participation argument must fail

under all of these three “principles” gleaned by Petitioners

from this Court’s decision in Gould. First, the Congressional

intent that ERISA preempt “any and all state laws insofar as

they may now or hereafter relate to any employee benefit

plan” is beyond question. In Franchise Tax Bd. of The State

of California v. Construction Laborers Vacation Trust for

Southern California, 463 U.S. 1, 24 n.26 (1983), this court

explained:

In addition, ERISA’s legislative history indicates

that, in light of the Act’s virtually unique pre-emp-

tion provision, see section 514, 29 U.S.C. § 1144,

“A body of federal substantive law will be developed

by the courts to deal with issues involving rights

and obligations under private welfare and pension

plans.” 120 Cong. Rec. 29942 (i974) (remarks of

Senator Javits).

18

Again, in Shaw, 463 U.S. 85, this Court quoted the

legislative history of ERISA:

Representative Dent, for example stated:

“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. With the

preemption of the field, we round out the protection

afforded participants by eliminating the threat of

conflicting and inconsistent state and local regula-

tion. 120 Cong. Rec. 29197 (1974).”

Id. at 99. It is thus clear that the Congressional purpose in

enacting ERISA was to reserve the regulation of employee

benefits to federal authority. Jd.

As to the second principle, Labor Code section 1777.5

cannot plausibly be defended as a legitimate response to State

procurement constraints or to local economic needs. Labor

Code section 1777.5 is regulation, pure and simple. More-

over, its admitted purpose is to promote apprenticeship which

the State views as a valuable social goal. It is neither the

mere expression of “local economic needs” nor is it simply a

“procurement restraint.” It is not a business decision but

rather an exercise of police power to further the State’s social

objectives.

Under the third principle, preserving the enforcement of

Labor Code section 1777.5 as applied in this case would not

further the interests of the “national market-place.” Each

state under Petitioners’ theory would be given free reign

to set its own terms and conditions for participation in

apprenticeship plans. As Senator Javits explained during

the legislative debate over ERISA, “[t]he emergence of a

comprehensive and pervasive Federal interest and the inter-

ests of uniformity with respect to interstate plans

required... the displacement of State action in the field of

private employee benefit programs.” 120 Cong. Rec. 29,942

(1974) (remarks of Senator Javits) (quoted in Shaw, 463 U.S.

at 99-100 n.20). Furthermore, preemption of state laws

regulating employer contributions to employee welfare plans

serves the Congressional purpose of “eliminating the threat

19

of conflicting or inconsistent state and local regulation of

employee benefit plans.” 120 Cong. Rec. 29,933 (1974)

(remarks of Senator Williams) (quoted in Shaw, 463 U.S. at

99). Thus, the goal of national uniformity and a free market

place is served, not hindered, by preemption of inconsistent

state regulations.

E. ERISA Section 514(d) And The Fitzgerald Act Do Not Save

California Labor Code Section 1777.5 From Preemption As

Applied In This Case.

ERISA Section 514(d) clarifies the scope of ERISA pre-

emption as follows:

Nothing in this Title shall be construed to alter,

amend, modify, invalidate, impair, or supersede

any law of the United States (except as provided in

section 111 and 507(b)) or any rule or regulation

issued under any such law.

29 U.S.C. § 1144(d).

Thus, Section 514(d) makes clear that ERISA preempts

only state laws and not federal laws. To be protected from

preemption under 514(d), Labor Code Section 1777.5 would

have to be elevated to the status of a federal law. Nothing

presented by Petitioners suggesis any appropriate basis for

doing so. Nevertheless, Petitioners devote numerous pages

of briefing to the exclusion in a frantic attempt to make

ERISA Section 514(d) the deus ex machina that will save

Labor Code Section 1777.5 from preemption.

Petitioners lead us down the slippery slope of their

argument by first extolling the virtues of apprenticeship.

Petition at p. 9. Petitioners then argue that a federal statute

known as the Fitzgerald Act (29 U.S.C. § 50) saves Labor

Code § 1777.5 from preemption relying on ERISA Section

514(d)—the federal law savings clause. Petition at pp. 23-

26. In other words, Petitioners argue that the Fitzgerald Act

transforrns Labor Code Section § 1777.5 into a federal law.

Even a cursory glance at the Fitzgerald Act reveals the

frivolous nature of this argument. The Fitzgerald Act is only

20

four sentences in length and has no subsiantive provisions at

all. It is simply a general policy statement acknowledging the

benefits of apprenticeship programs. It was also enacted in

1937, some 37 years before ERISA. Thus, it can hardly be

viewed as an intentional Congressional limitation on the

scope of ERISA and its “virtually unique preemption

provision.” Franchise Tax Board, 463 U.S. at 24 n.26.

Likewise, the federal regulations on which Petitioners

place so much reliance are irrelevant here. According to their

own terms, the regulations are established for the purpose of

setting forth federal labor standards concerning apprentices

and to “extend the application of those standards by prescrib-

ing policies and procedures concerning registration for certain

federal purposes, of acceptable apprenticeship programs, with

the U.S. Department of Labor....” 29 C.F.R. § 29.1(b)

(emphasis added). The regulations do not, as Petitioners

imply, give the states carte blanche or indeed any authority to

establish independent apprenticeship requirements. Rather,

the regulations establish federal standards for apprenticeship

programs which control the circumstances under which an

apprenticeship program may be registered with the U.S.

Department of Labor. The only state function is to act as

the agent of the federal government in verifying compliance

with these federal standards and in registering the programs

with the U.S. Department of Labor. Further, and more

significantly, there is no mandatory federal requirement. The

federal regulations do not require any employer to have an

apprenticeship program or authorize any state to impose such

a requirement. Thus, because Section 1777.5 has nothing to

do with federal registration of apprenticeship programs, the

regulations on which Petitioners rely are irrelevant for pur-

poses of the federal law savings clause. Further, nothing in

the federal law requires or even hints at mandatory participa-

tion by employers.

This Court in Shaw, 463 U.S. 85, in analyzing ERISA’s

federal law exclusion under 514(d), observed:

ERISA’s structure and legislative history, while not

particularly illuminating with respect to section

514(d), caution against applying it too expansively.

21

As we have detailed above, Congress applied the

principle of preemption “in its broadest sense to

foreclose any non-federal regulation of employee

benefit plant,” creating only very limited exceptions

to preemption. 120 Congressional Record 29197

(1974) (remarks of Representative Dent); see id., at

29933 (remarks of Senator Williams).

*_*_*_*

While section 514(d) may operate to exempt provi-

sions of state laws upon which federal laws depend

for their enforcement, the combination of Congress’

enactment of an all-inclusive preemption provision

and its enumeration of narrow, specific exemptions

to that provision makes us reluctant to expand

section 514(d) into a more general saving clause.

Id. at 104.

Thus, it is well established that where a state statute is

enacted under the umbrella of a federal enabling act, it is

saved from preemption by Section 514(d) of ERISA only to

the extent that it is a mechanism for enforcing the affirmative

requirements of federal law. Where, as here, the state statute

imposes requirements not imposed by the federal law, those

requirements are subject to preemption.

Further, the fact that overall Congressional policy recog-

nizes the benefits of well-run apprenticeship programs does

not give the states leave to regulate in pursuit of that goal.

In McMahon vy. McDowell, 794 F.2d 100 (3d Cir.), cert.

denied, 479 U.S. 971 (1986), the Third Circuit rejected a

similar argument based on the asserted laudable goals oi the

state law which was clearly in conformance with overall

federal policy. The court ruled: “Shaw and Metropolitan Life

make it very clear that state laws relating to a covered plan,

even those that are arguably consistent with the goals of

ERISA, are preempted by Section 514(a), 29 U.S.C. 1144(a).”

Id. at 108. As this Court held in Mackey vy. Lanier, 486 U.S.

at 830, a state law is not saved by “legislative good intentions.”

22

This Court in Shaw, 463 U.S. 85, concluded its analysis

of ERISA Section 514(d) by observing:

To the extent that our construction of ERISA causes

any problems in the administration of state fair

employment laws, those problems are the result of

Congressional choice and should be addressed by

Congressional action. To give section 514(d) the

broad construction advocated by appellants would

defeat the intent of Congress to provide comprehen-

sive preemption of state law.

Id. at 106 (emphasis added).

The Ninth Circuit and the district court in their opinions

below, forcefully dismissed the argument that Section 514(d)

saved Section 1777.5 from preemption:

By no stretch of the imagination could section

1777.5 be considered a state law the preemption of

which would impair federal law. The Fitzgerald

Act merely directs the Secretary of Labor “to formu-

late and promote the furtherance of labor

standards...to safeguard the welfare.of appren-

tices’ and related objectives. 29 U.S.C. § 50... the

regulations relate only to eligibility for federal regis-

tration. Neither they nor the act itself contemplate

enforcement mechanisms

*_* *

Accordingly, it must be concluded that section

514(d) does not save the order issued under section

1777.5 from ERISA preemption.

Pet App: 25a; 38-39a.

Petitioners’ argument that state statutes that “go beyond

federal minimums” are not necessarily preempted by ERISA

(Pet. at p. 24) was expressly rejected by this Court in Shaw.

This position was reiterated in Mackey v. Lanier, 486 U.S.

at 829-830, where the Supreme Court explained:

[tlhe preemption provision- [of section

514(a)] . . . displace[s] all state laws that fall within

its sphere, even including state laws that are consis-

tent with ERISA’s substantive requirements. Met-

ropolitan Life Insurance Co. v. Massachusetts,

23

supra, 471 U.S. at 739, 105 S. Ct. at

2389... legislative “good intentions” do not save

a state law within the broad preemptive scope of

section 514(a).

The analysis by Petitioners contrasting the Job Training

Partnership Act and the Occupational Safety and Health Act

to the Fitzgerald Act and to Labor Code Section 1777.5 is

meaningless because there is no issue of ERISA preemption

involved in the former situation. The argument is a blatant

attempt to draw this Court’s attention away from the exten-

sive body of law concerning the only issue involved in this

case, the scope and interpretation of ERISA Section 51 4(a).

The court in Solomon y. Klein, 770 F.2d 352 (3d Cir. 1985),

rejected an attempt to argue by analogy with respect to ERISA

by examining Congressional intent concerning some oiher

statute. It ruled:

The method of analogy is, of course, a legitimate

method of reaching of a decision. But in matters

of statutory construction of ERISA our responsibil-

ity is to ascertain the intention of Congress in

ERISA and not its intention in enacting a separate

federal statute.

Id. at 354-355.

Moreover, the impact of Petitioners’ theory would be to

create a statutory exception to ERISA for apprenticeship

programs. In essence, adoption of this completely novel

theory would erase the term “apprenticeship” from the defi-

_ nition of “employee welfare benefit plans” set forth in Section

3(1) of ERISA. Not only is this a ridiculous statutory

construction but the Ninth Circuit Court of Appeals and the

United States Supreme Court have held apprenticeship plans

to fall within the scope of ERISA and ERISA preemption.

See J.A. Jones, 846 F.2d at 1217. Certainly a policy statement

enacted 37 years before ERISA cannot be deemed to modify

ERISA’s plain language.

Contrary to the impression Petitioners attenipt to create,

it is clear that Congress specifically chose not to provide a

general exemption from preemption for state apprenticeship

24

regulation. Congress chose to provide such exceptions for

state laws which regulate insurance banking and securities

and for generally applicable criminal laws (see ERISA Section

514(b)). ERISA also exempts from its coverage governmental

plans, church plans, and plans maintained solely for the

purpose of complying with applicable workers’ compensation,

unemployment compensation or disability insurance laws

(see ERISA Section 4(b)). However, nowhere does ERISA

provide any type of exception for state regulation of appren-

ticeship. Because it is obvious that Congress carefully consid-

ered the concept of providing exceptions to preemption and

chose not to except apprenticeship programs, this Court is

not free to add such an exception by judicial fiat. As the

Court noted in Shaw, 463 U.S. at 104 “the combination of

Congress’ enactment of 514(a)’s all-inclusive pre-emption

provision and its enumeration of narrow, specific exceptions

to that provision militate against expanding § 514(d) into a

more general savings clause.” Thus, Petitioners’ argument

that the existence of the National Apprenticeship Act indi-

cates a Congressional intent to permit the states to regulate

apprenticeship notwithstanding the broad preemptive effect

of ERISA is without merit.

25

IV

CONCLUSION

For the foregoing reasons, Respondent respectfully sub-

mits that the judgment below should be affirmed.

DATED: July 16, 1990

Respectfully submitted,

KAREN E. Forp

(Counsel of Record)

JAMES P. BAKER

LITTLER, MENDELSON, FASTIFF & TICHY

A Professional Corporation

650 California Street, 20th Floor

San Francisco, California 94108-2693

Telephone: (415) 433-1940

Attorneys for HyDROSTORAGE, INC.,

Respondent.