Opposition Brief — Norcal Waste Systems, Inc. v. Abraham

In The

Supreme Court of the United States

.

NK OF AMERICA, N.A

LIO ABRAHANS, et al.,

Respondents.

—-¢

NORCAL WASTE SYSTEMS, INC. and

NORCAL WASTE SYSTEMS, INC.

EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST,

Petitioners,

V.

IULIO ABRAHAM, et al.,

Respondents.

———¢

On Petitions For A Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

—¢@

BRIEF FOR THE RESPONDENTS

IN OPPOSITION

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Counsel Re i

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California Street, 12th Flo

San Francisco, CA 94108-2817

415) 364-67

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March 18, 2002

COUNTER-STATEMENT OF THE

QUESTIONS PRESENTED

Respondents submit this Counter-Statement of Ques-

tions Presented because the petitioner Bank of America

(Docket No. 01-1179), and petitioners Norcal Waste Sys-

tems, Inc. and Norcal Waste Systems, Inc. Employee Stock

Ownership Plan and Trust (Docket No. 01-1187), have

presented questions in their respective petitions which

are not raised by the decision of the Court of Appeals for

the Ninth Circuit. The only question fairly presented by

the Court of Appeals’ decision is this:

i:

Did not the Court of Appeals correctly apply the

jurisdictional rule of Metropolitan Life Insurance

Co. v. Taylor, 481 U.S. 58 (1987), in holding that

neither prong of the ERISA complete preemption

test was satisfied and removal was improper in

light of its finding that respondent note holders’

state law claims do not encroach upon any

ERISA-regulated relationship, have nothing to do

with ERISA benefits, the administration of a ben-

efit plan or any duties imposed by ERISA and are

not based upon any rights that are conferred,

enforced or governed by ERISA, nor upon a vio-

lation of the terms of a plan?

ii

PARTIES TO THE PROCEEDINGS AND

RULE 29.6 DISCLOSURE

The parties to the proceedings are correctly set out in

Each of the respondents is an individual.

iii

TABLE OF CONTENTS

Page

COUNTER-STATEMENT OF THE QUESTIONS PRE-

en. gh PET EEE EET EEE CEE TUPI rr Peete Oann i

PARTIES TO THE PROCEEDINGS AND RULE 29.6

NONE 866s SEN Sp xanae cee yeadixninsawsiers ii

BABUR OF AUTHIORITIOS ...00ccccccccccccessccvce Vv

er UNOY 6 Ses eves dss caddhdasepasVerssuce 1

INT ss cA meee cues chs shee ooo kee a eeeas 1

STATUTORY PROVISIONS INVOLVED............. 1

COUNTER-STATEMENT OF THE CASE............ 3

PCs ekw Re lah seo ca wdewnsiwaeusdaaasecns a: 4

B. Complaint And Proceedings ................. +

C. Court Of Appeals’ Decision ................. 5

1. Conflict Preemption...................... 6

ee I ee 44 e ds cash 4 seg sean 9

REASONS FOR DENYING THE WRIT............. 10

A. The Holding That The Note Holders’ Claims

Fall Outside The Scope Of ERISA’s Civil

Enforcement Provisions Does Not Conflict

With The Decision Of Any Other Court of

Appeals And Is Entirely Correct............. 12

1. The Court Of Appeals’ Holding That The

Claims Fall Outside The Scope Of ERISA’s

Civil Enforcement Provisions Does Not

Conflict With The Decision Of Any Other

ROE NE NOE wenn ca taue bay + oexncs 14

iv

TABLE OF CONTENTS - Continued

Page

2. Petitioners Distort The Court Of Appeals’

PN 0's 450 SKA Nelda adeeb eekesecacae 16

B. The Holding That The Note Holders’ Claims

Are Not Conflict Preempted Does Not Conflict

With The Decision Of Any Other Court of

Appeals And Is Entirely Correct............. 18

1. The Court Of Appeals’ Decision Does Not

Conflict With The Decision Of Any Other

COU CE IIE 6 i ins scree tenes susssss 19

2. Contrary To The Bank’s Argument, The

Court Did Not Hold That ESOPs Are

Excluded From ERISA Coverage yy ae 23

CREED Con nkaudewhonsre ch5irnakaeeaenie wees 27

Vv

TABLE OF AUTHORITIES

Page

CasEs:

Bartholet v. Reishauer A.G. (Zurich), 953 F.2d 1073

ee ME MN 66S) nk ox dR NA EREG A cae bk BRE AOSD 22

Buce v. Allianz Life Ins. Co., 247 F.3d 1133 (11th Cir.

SE Vicevees ac haas ie kage bhaebi ee koh ekioeeawes 26-27

Cal. Div. of Labor Standards v. Dillingham Standards,

Rag BUR, SEP US. SOG IGRI) noc cc cccccss 7, 18, 19

Caterpillar Inc. v. Williams, 482 U.S. 386 (1987)....... 18

Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d

a Be , P res yen a rr nee 21

Egelhoff v. Egelhoff, 532 U.S. 141 (2001) ........ 7, 18, 20

Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation

Trust For Southern Cal., 463 U.S. 1 (1983)....... 12, 18

General American Life Ins. v. Castonguay, 984 F.2d

ENE GO MI: PG aac dans chek si ckabsa de san one 19

Glazier & Glassworkers Union Local No. 252 Annuity

Fund v. Newbridge Sec. Inc., 93 F.3d 1171 (3d Cir.

SEES Sake Ohh) WRG de Wn be bean eae Akane dws 20, 21

Hospice of Metro Denver, Inc. v. Group Health Ins.,

We Wee Fame COR OO, FO ono ok cies cacncvnas 20

Hughes Aircraft Co. v. Jacobson, 525 U.S. 432 (1999) .... 16

Hull v. Fallon, 188 F.3d 939 (8th Cir. 1999), cert.

UME, Seem Whe, TAP CR no cic cc ccc ccceus 22

Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482

ASR Sa RN, Syne grog Pre 22

Lordmann Enterprises, Inc. v. Equicor, Inc., 32 F.3d

POE I Bs ov inc eck abcde a rs anianadaces 20

vi

TABLE OF AUTHORITIES - Continued

Page

LoPresti v. Terwilliger, 126 F.3d 34 (2d Cir. 1997). .21, 22

Mackey v. Lanier Collection Agency & Serv., Inc., 486

ies GE CIDE wi Kec ccesndsavacensssevectaccesece 19

Martin v. Feilen, 965 F.2d 660 (8th Cir. 1992)......... 25

Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58

Bg SOE ee rE Pee erry re 3, 3, 22, 12

Moench v. Robertson, 62 F.3d 553 (3d Cir.

a tl bs ced ad labeled bonkuls cehecceeaens 25-26

Moran v. Rush Prudential HMO, Inc., 230 F.3d 959

(7th Cir. 2000), cert. granted, 121 S. Ct. 2589

SUED 46 b4054s0n enue sbheeeaheescdedeneeeteteess 26-27

N.Y. State Conf. of Blue Shield Plans v. Travelers Ins.

Co, BEG Si We TR ne do karhanrresiccsenens 19, 20

Peacock v. Thomas, 516 U.S. 349 (1996)............... 14

Pegram v. Herdrich, 530 U.S. 211 (2000)........... 16, 20

Rutledge v. Seyfarth, Shaw, Fairweather, & Geraldson,

201 F.3d 1212 (9th Cir.), amended by 208 F.3d

1170 (9th Cir.), cert. denied, 531 U.S. 992 (2000) .... 24

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

sa Ree pe ra nee ae ee 22

Smith v. Provident Bank, 170 F.3d 609 (6th Cir.

PEW ek 5 una cuavrnee ous e404es ceeubrie accee 14-15, 20

Toumajian v. Frailey, 135 F.3d 648 (9th Cir. 1998)..... 10

Vii

TABLE OF AUTHORITIES - Continued

Page

STATUTES:

ee es I as hen anesadsndnucsnedaaseenecsGuns 1

Employee Retirement Income Security Act of 1974

(Rms by Ze UB. § IGG 6 OBB. cc ccecscscccecs 3

ERISA § 409(a), 29 U.S.C. § 1109%{a).................. 2

ERISA § 502(a), 29 U.S.C. § 1132(a)............. passim

ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B)....... 15

ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2)........ passim

ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3)...... 9, 13, 15

ERISA § 514(a), 29 U.S.C. § 1144(a)...... 3, 6, 7, 12, 18

soy

OPINIONS BELOW

The opinion of the Court of Appeals for the Ninth

Circuit, entered on September 7, 2001, and reported at 265

F.3d 811, appears in the Appendix of both petitioners’

papers at pages la-20a.! The opinion of the district court

is unreported. 21a-22a.

JURISDICTION

Respondents agree with the petitioners’ statement of

this Court’s jurisdiction.

STATUTORY PROVISIONS INVOLVED

1. Section 1441(b) of Title 28 of the United States

Code states in relevant part:

Any civil action of which the district

courts have original jurisdiction

founded on a claim or right arising

under the Constitution, treaties or laws

of the United States shall be removable

without regard to the citizenship or resi-

dence of the parties.

1 The defendants in this case filed two petitions (Docket

No. 01-1179 and Docket No. 01-1187), seeking review of the

same decision of the Court of Appeals for the Ninth Circuit.

Respondent note holders Julio Abraham, et al. file this one

opposition to both petitions. Respondents’ citations are to the

opinions of the Court of Appeals and the district court as

reproduced in the appendices of both petitioners (which are

identically numbered).

* 7 : oe os ett > how,

2. Section 502(a) of the Employee Retirement

Income Security Act, (“ERISA”), 29 U.S.C.

§ 1132(a), states in relevant part:

A civil action may be brought -. . . (2)

by the Secretary, or by a participant,

beneficiary or fiduciary for appropriate

relief under section 1109 of this title; (3)

by a participant, beneficiary, or fiduci-

ary (A) to enjoin any act or practice

which violates any provision 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 sub-

chapter or the terms of the plan.

3. Section 409(a) of ERISA, 29 U.S.C. § 1109(a),

incorporated by reference into § 502(a)(2), states

in relevant part:

Any person who is a fiduciary with

respect to a plan who breaches any of

the responsibilities, obligations, or

duties imposed upon fiduciaries by this

subchapter shall be personally liable to

make good to such plan any losses to

the plan resulting from each such

breach, and to restore to such plan any

profits of such fiduciary which have

been made through use of assets of the

plan by the fiduciary, and shall be sub-

ject to such other equitable or remedial

relief as the court may deem appropri-

ate, including removal of such fiduciary.

¥ r e * ° » “ “pay Fes. | ¥ ‘ “, >>

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

states in relevant part:

Except as provided in subsection (b) of

this section, the provisions of this sub-

chapter and subchapter III of this chap-

ter shall supersede any and all State

laws insofar as they may now or hereaf-

ter relate to any employee benefit plan

described in section 1003(a) of this title

and not exempt under section 1003(b) of

this title.

COUNTER-STATEMENT OF THE CASE

In Abraham v. Norcal Waste Systems, Inc., 265 F.3d 811

(9th Cir. 2001), the United States Court of Appeals for the

Ninth Circuit properly held that none of the state law

claims in respondents’ state court complaint was com-

pletely preempted by the Employee Retirement Income

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

Based on both its reading of the respondents’ state court

complaint and well established principles of ERISA pre-

emption jurisprudence, the Ninth Circuit held that the

state law claims did not meet either of the two require-

ments for original federal question jurisdiction under

Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 64-66

(1987): (1) respondents’ claims did not fall within the

scope of ERISA’s civil enforcement scheme, § 502(a), 29

U.S.C. § 1132(a) (“displacement”), and (2) respondents’

claims were not preempted by ERISA, § 514(a), 29 U.S.C.

§ 1144(a) (“conflict preemption”).

A. Facts.

This case is about an agreement to sell stock and the

breach of duties that arose from that agreement. Until

1986, petitioner Norcal Solid Waste Systems, Inc. (“Nor-

cal”), was an employee-owned garbage company. In

December 1986, respondents, one hundred and forty-

seven former employee-shareholders (or their heirs and

assigns) of Norcal (the “note holders”), sold their stock to

petitioner Norcal Waste Systems, Inc. Empioyee Stock

Ownership Plan and Trust (“Norcal ESOP" or “Norcal”)

as part of a leveraged buyout. In return, each respondent

received cash and a note issued under a trust indenture

agreement (the “Indenture”) between the Norcal ESOP

and Security Pacific National Bank, the predecessor of

petitioner Bank of America (“Bank”), who acted as the

Indenture Trustee. 3a.

Under the Indenture, Norcal’s ESOP was required to

redeem the notes before it could consolidate, merge, or

substantially transfer assets. 4a (quoting Indenture

§ 10-2). However, in December 1987, Norcal completed a

transaction with Envirocal, Inc., whereby the Norcal

ESOP and the Envirocal ESOP combined to form a single

entity without redeeming the notes and the Bank failed to

enforce the note holders’ redemption rights. 4a-5a.

B. Complaint And Proceedings.

In July 1994, the note holders filed this lawsuit in

California state court against the Bank, Norcal, the Norcal

ESOP, and fourteen other defendants. In their complaint,

the note holders alleged only state law causes of action,

including fraud, breach of contract, tortious interference

a

with contract, negligence, breach of fiduciary duty, and

unjust enrichment. The complaint sought relief on the

basis of the note holders’ reliance in tendering their Nor-

cal shares to the ESOP, the default on their notes, and the

Bank’s failure to enforce redemption of their notes at the

time of the Envirocal transaction. 18a-19a.

Defendants removed, alleging that forty-four of the

(one hundred and forty-seven) note holders were partici-

pants in the Norcal ESOP and three of their thirteen

causes of action were completely preempted by ERISA.

The district court denied the note holders’ motion for

remand, holding that there was federal subject matter

jurisdiction as to the three claims of the forty-four note

holders and exercising supplemental jurisdiction over all

the other note holders and all the other claims. 21a-22a.

The district court never addressed the determinative

jurisdictional question whether the state law claims fell

within the scope of ERISA’s civil enforcement provision.

22a. After a partial settlement in 1995, resolving the note

holders’ claims against all defendants except the Bank,

and after a trial, the note holders appealed to the Court of

Appeals for the Ninth Circuit arguing, among other

things, that the district court lacked subject matter juris-

diction.

C. Court Of Appeals’ Decision.

The Court of Appeals vacated the judgment, holding

that the district court lacked subject matter jurisdiction

and therefore removal had been improper. Following

Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58 (1987),

the Court of Appeals explained that removal would have

been proper only if: (1) ERISA preempted the state law

cause of action under § 514(a), 29 U.S.C. § 1144(a) (“con-

flict preemption”); and (2) the cause of action was encom-

passed by ERISA’s civil enforcement provision, § 502(a),

29 U.S.C. § 1132(a) (“displacement”). 9a. The Court held

that neither requirement was met. Id. As the Court

explained:

Plaintiffs brought suit based on state law theo-

ries of fraud, breach of fiduciary duty, and neg-

ligence that cannot be said to “relate to” an

ERISA plan within the meaning of 29 U.S.C.

§ 1144(a); nor are the claims encompassed

within the scope of ERISA’s civil enforcement

provision, 29 U.S.C. § 1132(a). It is of no conse-

quence that some Plaintiffs were also employees

of the plan sponsor and plan participants at the

time of suit because the claims have nothing to

do with their status as such. Like all Plaintiffs,

the ESOP participants brought suit in state court

solely in their capacity as former shareholders

and current note holders pursuant to the terms

of the Indenture. Thus, the state law claims have

no bearing on any ERISA-governed relationship

and are not displaced by ERISA’s civil enforce-

ment scheme.

20a.

1. Conflict Preemption.

Applying the two prong complete preemption test,

the Court first addressed conflict preemption under

§ 514. Noting that the “relevant state law certainly does

not act immediately or exclusively on an ERISA plan,”

the Court explained that the question was whether the

state laws claims have a “connection with” ERISA.

10a-11la. Discussing California Division of Labor Standards

Enforcement v. Dillingham Constr. N.A., Inc., 519 U.S. 316,

324-25 (1997), and quoting Egelhoff v. Egelhoff, 532 U.S.

141, 147 (2001), the Court explained that “to determine

whether a state law has the forbidden connection, we

look both to the objectives of the ERISA statute as a guide

to the scope of the state law that Congress understood to

survive, as well as the nature and effect of the state law

on ERISA plans.” 10a-1la. The Court then addressed in

detail petitioners’ arguments that § 514(a) preempted the

state law claims because they allegedly infringed upon

certain ERISA-regulated relationships between: (1) the

plan and parties in interest; (2) the plan and participants;

and (3) the plan and fiduciaries. 1la-17a. The Court found

that none of these ERISA relationships was affected by

the state law claims because the claims were based on the

parties’ non-ERISA relationships, that is the relationship

of debtor — creditor and former shareholder, which have

nothing to do with ERISA or the purposes of ERISA

preemption. 9a-17a.

More specifically, the Court found the fact that forty-

four of the one hundred and forty-seven note holders

were participants in the ESOP was irrelevant to their state

court claims because none of the note holders and none

of their claims sought redress for any rights or obliga-

tions conferred by ERISA or challenged any conduct reg-

ulated by ERISA. 12a. The claims were not, the Court

held, related to, let alone based on ERISA’s rules prohibit-

ing transactions between the plan and the parties in

interest — the basis for the petitioners’ argument that this

ERISA-regulated relationship was somehow infringed by

the claims. 12a. Rather, the Court found that, based on the

claims actually asserted in the state court action, “the

ESOP’s relationship with Plaintiffs who were also Norcal

employees was no different from its relationship with the

rest of the Plaintiff note holders.” 13a.

Under similar reasoning, the Court of Appeals also

found that the claims did not encroach upon the relation-

ship between the plan and the participants. 13a-15a. Here

again, the Court rejected the contention that the note

holders’ claims implicated ERISA or overlapped with the

claims the participant note holders could make under

ERISA. As the Court of Appeals emphasized, “[t]he

claims of fraud, breach of fiduciary duty, and negligence

arise from that status as note holders, and do not ‘touch

on’ the status of the ESOP as a benefit plan or of any

Plaintiffs as participants in that plan (or on any claim the

participants may make against the plan in that capacity).”

13a-14a (emphasis added); see also 15a (“The rights and

duties under state law between the ESOP and the note

holders, whether ESOP participants or not, are distinct

from any ERISA-governed relationship between a plan

and its participants.”).

Finally, the Court determined that the claims did not

encroach upon the relationship between the plan and the

plan’s fiduciaries. Recognizing that “[p]laintiffs brought

suit in their capacity as note holders pursuant to the

terms of the Indenture, which by its own terms is gov-

erned by California law,” the Court observed that “the

state law claims here did not arise from transactions

directly relating to plan benefits or administration.” 16a.

Rather, “[t]he conduct at issue concerned the acquisition

of Norcal shares for restricted notes and a subsequent

failure to redeem those notes.” Id. “As such, the only

impact that the state law duties might have had on the

plan or its beneficiaries is an indirect economic burden

... insufficient for conflict preemption.” Id. Additionally,

the Court recognized that certain defendants - who were

also plan fiduciaries - were not being sued for actions

taken in that capacity, but were being sued “as the agents

of the ESOP corporate entity that obtained Norcal shares

from Plaintiff note holders.” Id.

Based on its analysis that, in fact, the state law claims

“have nothing to do with benefits, the administration of a

benefit plan, or any duties imposed by ERISA” and that

“Injo ERISA-regulated relationship is encroached upon

by the state law claims,” the Court concluded that there

was “no basis to find conflict preemption under ERISA.”

17a.

2. Displacement.

Addressing complete preemption’s second prong,

§ 502(a), ERISA’s civil enforcement provision, the Court

rejected the petitioners’ argument that the note holders’

claims: fell within the scope of subsections (a)(2) or (a){3),

which permit suits to redress an ERISA violation or to

enforce the terms of the plan or the provisions of ERISA.

The Court explained:

The claims asserted by all Plaintiffs in the state

court action, however, do not fall within the

scope of § 1132(a) because those claims are

based upon rights that arise under state law in

their capacity as former shareholders of Norcal

and current note holders under the Indenture,

not upon any rights that are conferred, enforced, or

10

governed by ERISA (nor upon a violation of the

terms of a plan).

18a (emphasis added).

The Court’s holding was based on the simple facts

that the claims “seek relief for all plaintiffs on the basis of

their reliance in tendering their Norcal shares to the

ESOP, the eventual default on their notes and the failure

to redeem or enforce redemption,” and none of the

“claims derive from ‘any of the responsibilities, obliga-

tions, or duties imposed upon fiduciaries by this sub-

chapter’ ” of ERISA. 19a (quoting § 409, 29 U.S.C. § 1109,

which is incorporated into § 502(a)(2) by reference).

Moreover, the Court explained, none of the plaintiffs

“seek(s] relief as a participant, beneficiary, or fiduciary to

enjoin any act or obtain any other equitable relief to

redress any violations or enforce any provisions of

ERISA.” Id. (quoting Toumajian v. Frailey, 135 F.3d 648, 656

(9th Cir. 1998)). In finding that the claims also “do not

concern any plan fiduciaries in their capacity as such,”

the Court concluded that “none of the state law claims

can be characterized as fiduciary breach claims within the

scope of ERISA’s civil enforcement provision.” Id.; see also

id. (“Simply put, the claims do not concern any plan

fiduciaries in their capacity as such.”). Accordingly, the

Court of Appeals held that claims did not fall within the

scope of ERISA’s civil enforcement provision.

+

REASONS FOR DENYING THE WRIT

The petitioners offer no “compelling reasons” for

review and the petitions should be denied because the

11

decision of the Court of Appeals for the Ninth Circuit is

based on the proper application of the well settled juris-

dictional rule of Metropolitan Life Insurance Co. v. Taylor,

481 U.S. 58 (1987), to the particular state law claims in

this case. Petitioners’ disagreement with the Court of

Appeals’ application of the rule and factual analysis of

the claims does not merit review. And while petitioners

attempt to identify alleged conflicts between the Court's

decision and the decisions of five other Courts of Appeals

— from the Second, Third, Sixth, Seventh, and Eighth

Circuits - in fact, none of the cases identified by peti-

tioners presents any actual conflict. At most, the peti-

tioners do no more than complain, without merit, of

“erroneous factual findings or the misapplication of a

properly stated rule of law,” reasons that rarely justify

review. Sup. Ct. R. 10. This case is no exception and

review should be denied. :

Petitioners’ “questions presented” and the asserted

conflicts are false because they are premised on mis-

characterizations of the Ninth Circuit Court of Appeals’

decision and reasoning. Moreover, petitioners virtually

ignore the determinative jurisdictional issue identified:in

Metropolitan Life — whether any of the note holders’ state

law claims are within the scope of ERISA’s civil enforce-

ment provisions. Lacking any substantial argument on

this controlling issue, petitioners instead devote essen-

tially all of their attention to the non-jurisdictional issue

of conflict preemption which, as petitioners concede, can-

not alone justify removal or create a proper basis for

subject matter jurisdiction. See Norcal Pet. at 6-7; Bank

Pet. at 3-4.

12

With no substantial argument on the key displace-

ment issue and only illusory conflicts and mere disagree-

ments with the Ninth Circuit Court of Appeals’

application of Metropolitan Life to the particular facts pre-

sented to go on, the petitioners fail to present any valid

reason for this Court to grant the writ.

A. The Holding That The Note Holders’ Claims

Fall Outside The Scope Of ERISA’s Civil

Enforcement Provisions Does Not Conflict

With The Decision Of Any Other Court Of

Appeals And Is Entirely Correct.

In Metropolitan Life, 481 U.S. at 64-66, this Court drew

a distinction between claims that are preempted by

ERISA § 514(a), 29 U.S.C. § 1144(a) (“conflict preemp-

tion”), and claims that fall within the scope of § 502(a), 29 -

U.S.C. § 1132(a) (“displacement”). “Conflict preemption”

means that ERISA provides a federal defense, but does

not establish original federal jurisdiction permitting

removal. See Franchise Tax Bd. of Cal. v. Constr. Laborers

Vacation Trust For Southern Cal., 463 U.S. 1, 25-27 (1983).

Only when a claim also “falls within the scope” of

§ 502(a) is it converted from an “ordinary state common

law complaint into one stating a federal complaint for the

purposes of the well-pleaded complaint rule.” Metro-

politan Life, 481 U.S. at 65. Accordingly, the “displace-

ment” prong of the complete preemption analysis is

’ absolutely necessary for federal jurisdiction.

Guided by the statutory language and Ninth Circuit

precedents (which petitioners do not challenge), the

Court of Appeals correctly held that the note holders’

13

claims did not fall within the scope of § 502(a)(2) or (a)(3),

the two civil enforcement provisions petitioners relied

upon, because none was premised “upon any rights that

are conferred, enforced, or governed by ERISA (nor upon

any violation of a plan).” 18a.?

The Court’s analysis is clearly correct. All the note

holders, including the forty-four who also were ESOP

participants, requested relief only for breaches of “rights

that arise under state law in their capacity as former

shareholders of Norcal and current note holders under

the Indenture.” 18a. The note holders sought relief solely

on the basis of their reliance in tendering their Norcal

shares to the ESOP, the default on the notes, and the

failure to enforce redemption. 19a. The state court com-

plaint did not state an ERISA cause of action, require any

review of the terms of the ERISA plan or request ERISA

relief, such as plan benefits or the clarification of future

benefits under the plan. Moreover, none of the claims

alleged any violation of duties imposed by ERISA on

fiduciaries. Thus, the Court properly found that “none of

the state law claims can be characterized as fiduciary

2 Petitioners do not dispute that the one hundred and forty-

seven note holders each had exactly the same state court claims

and that one hundred and three of the note holders (i.e., those

who were not ESOP participants) had no standing under ERISA

and could not possibly bring a claim within the scope of ERISA’s

civil enforcement provisions. Petitioners fail to explain how

some note holders’ claims were indisputably not displaced

while the exact same claims of other note holders were (under

the petitioners’ theory). The Court of Appeals’ decision that

none of the note holders’ claims was completely preempted

properly treats like claims alike.

14

breach claims within the scope of ERISA’s civil enforce-

ment provision.” 19a. As the Court of Appeals aptly

stated: “[s]imply put, the claims do not concern any plan

fiduciaries in their capacity as such.” Id. This holding

was plainly correct. See Peacock v. Thomas, 516 U.S. 349,

353 (1996) (holding that subject matter jurisdiction did

not exist because lawsuit did not allege a violation of

ERISA or of the plan).

1. The Court Of Appeals’ Holding That The

Claims Fall Outside The Scope Of ERISA’s

Civil Enforcement Provisions Does Not

Conflict With The Decision Of Any Other

Court Of Appeals.

Not only is the Court of Appeals’ decision correct but

also, contrary to petitioners’ arguments, it is fully consis-

tent with the decisions of the other Courts of Appeals. In

fact, the only case cited by petitioners (and even then,

only by the Bank) as presenting any conflict, Smith v.

Provident Bank, 170 F.3d 609, 612-14 (6th Cir. 1999), is

factually inapposite and thus does not conflict with the

Court of Appeals’ decision. Indeed, Smith recognizes the

rule, as does the Court of Appeals, that “the definition of

a fiduciary under ERISA is a functional one.” Id. at 613.

However, as a factual matter the Court of Appeals for the

Sixth Circuit in Smith found that, unlike this case, the

plaintiff’s claim was based on defendant’s conduct as an

ERISA fiduciary. Moreover, the plaintiff in Smith sought

“recovery of [plan] benefits,” leading the Court to con-

clude that the plaintiff, as a plan participant, sought “to

clarify his rights to future benefits under the terms of the

plan.” Id. at 613-14. The plaintiff’s claim in Smith to

pee

15

recover benefits or clarify his future entitlement to plan

benefits against a plan fiduciary based on breach of

fiduciary duties imposed by ERISA clearly falls within

the express scope of ERISA’s civil enforcement provisions

and distinguishes Smith from this case. See 29 U.S.C.

§-1132(a)(1)(B) (providing action “to recover benefits -

due .. . under the terms of the plan”). Accordingly, the

Court of Appeals’ decision is not in conflict with Smith.

For its part, Norcal fails to even develop a separate

argument on the displacement issue. While Norcal admits

that a claim can be brought under ERISA only “if it was

within the scope of one of the civil enforcement provi-

sions of Section 502,” it limits its discussion of subsec-

tions 502(a)(2) and (a)(3) to a single footnote. See Norcal

Pet. at 14 n.5. By so minimally discussing this key issue,

Norcal essentially concedes that the Ninth Circuit’s deci-

sion is not in conflict with a decision of any Court of

Appeals.

3 In a misguided effort to manufacture a conflict on the

displacement issue, the Bank lifts a single sentence quote from

Smith (“[a] claim for breach of fiduciary duty against the

fiduciary of an ERISA plan necessarily presents a federal

question,” Bank Pet. at 18 (quoting Smith, 170 F.3d at 614)

(petitioner’s emphasis)), implying that the Court of Appeals’

decision is contrary to the law in the Sixth Circuit. When read in

context, however, and given that the definition of an ERISA

fiduciary is a functional one, it is clear that the quoted language

in Smith means only that if the ERISA fiduciary is acting as such

and its actions in that respect give rise to a claim by a person

with standing to sue under ERISA, such claim falls within

ERISA’s civil enforcement provisions, § 502(a). Norcal’s

discussion of Smith recognizes this inherent limitation. See

Norcal Pet. at 20.

16

Instead, as set forth below, Norcal takes an equally

insupportable tack, arguing that the Court of Appeals’

“dual capacity” analysis is flawed, while conceding else-

where that this Court has recognized the very same rule,

i.e., “not all acts of a fiduciary who is for some purposes

an ERISA fiduciary are fiduciary acts regulated by

ERISA.” Norcal Pet. at 13 (citing Pegram v. Herdrich, 530

U.S. 211, 225 (2000)).

2. Petitioners Distort The Court Of Appeals’

Holding.

Petitioners acknowledge the rule that a party may

“wear two hats” and act in differing capacities that may

expose them to regulation under either ERISA or state

law depending on the nature of the act. See Norcal Pet. at

13 (citing Pegram v. Herdrich, 530 U.S. at 235 (citing

Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 443-44 (1999)

(holding that ERISA’s fiduciary requirements do not

apply to a plan settlor’s decision on terms or structure of

plan))). Petitioners’ arguments boil down to the assertion

that the Court of Appeals’ decision improperly permits

the note holders to have an “alternative theory of lia-

bility” under both ERISA and state law arising from the

“same acts.” See Norcal Pet. at 13-14; Bank Pet. at 15-16.

Petitioners are wrong; the Court of Appeals’ opinion says

no such thing. As the Court clearly explains, the state

court claims are not alternative theories of liability for

violations of ERISA; to the contrary, the claims do not

arise from the same acts that would give rise to liability

under ERISA. As the Court stated:

17

The claims of fraud, breach of fiduciary duty,

and negligence arise from [plaintiffs’] status as

note holders, and do not “touch on” the status

of the ESOP as a benefit plan or of any Plaintiffs

as participants in the plan (or on any claim the

participants may make against the plan in that

capacity).

14a (emphasis added); see also 16a (“The conduct at issue

concerned the acquisition of Norcal shares in exchange

for restricted notes and a subsequent failure to redeem

those notes.”).

As the Court made perfectly clear, the note holders’

state court claims had “nothing to do with benefits, the

administration of a benefit plan, or any duties imposed

by ERISA,” 17a, or anything to do with the claims

asserted in the separate federal suit brought by the forty-

four ESOP participants. 12a-13a, 16a, 18a, 20a.

Having conceded that “ERISA allows a party to act as

a fiduciary toward a plan’s beneficiaries in some transac-

tions and to act as a non-fiduciary, with divergent or even

adverse interests, in others,” Norcal Pet. at 13, Norcal’s

entire argument collapses and cannot be revived even by

its repeated attempts to mischaracterize the Court of

Appeals’ factual analysis of the claims and actual hold-

ing.

Petitioners’ reliance on the fact that forty-four of the

note holders, in their distinct capacity as ESOP partici-

pants, also filed a separate action in federal court under

ERISA is misplaced. Unless the claim actually asserted in

the state court action is, in reality, a claim arising under

federal law, mere standing of some of the note holders to

18

assert a federal claim does not create federal jurisdiction.

See Caterpillar Inc. v. Williams, 482 U.S. 386, 398-99 (1987).

Consistent with this Court’s precedent, the Ninth

Circuit properly found that none of the note holders,

including those who also were ESOP participants, alleged

any claims in this case arising under ERISA. The peti-

tioners fail to present any basis to challenge the Ninth

Circuit’s holding. Without a question worthy of certiorari

on this essential element of the complete preemption test,

the petitions should be denied. See Franchise Tax Bd., 463

U.S. at 7 (holding that removal was improper and there-

fore not reaching the merits of the ERISA conflict pre-

emption issue).

B. The Holding That The Note Holders’ Claims

Are Not Conflict Preempted Does Not Conflict

With The Decision Of Any Other Court Of

Appeals And Is Entirely Correct.

Review of the petitioners’ arguments and cases

shows that the Court of Appeals’ conflict preemption

analysis under § 514(a), which followed this Court’s anal-

ysis in California Division of Labor Standards Enforcement v.

Dillingham Construction, N.A., Inc., 519 U.S. 316 (1997),

and Egelhoff v. Egelhoff, 532 U.S. 141 (2001), is not in

conflict with any other Circuit. 10a-11a. Instead, the only

conflicts alleged by petitioners are illusory. They are

premised either on their disagreement with the Court of

Appeals’ factual analysis of the state court claims or a

mischaracterization of the Court’s reasoning.

19

1. The Court Of Appeals’ Decision Does Not

Conflict With The Decision Of Any Other

Court Of Appeals.

Norcal contends that the Court of Appeals’ decision

conflicts with the decision in General American Life Insur-

ance Co. v. Castonguay, 984 F.2d 1518 (9th Cir. 1993), a case

that the Court considered and distinguished. 15a-17a;

Norcal Pet. at 17-19. But this alleged conflict is merely a

disagreement with the Court’s factual analysis of the

claims and the application of the well-settled rule of

decision to these particular claims. In distinguishing Cas-

tonguay, the Court explained that the note holders’ claims

did not relate directly to plan benefits or plan administra-

tion, but created, at most, an indirect economic burden.

16a. See also Cal. Div. of Labor Standards, 519 U.S. at 334

(holding that “prevailing wage statute alters the incen-

tives, but does not dictate the choices facing ERISA

plans” and therefore is not preempted); N.Y. State Conf. of

Blue Shieid Plans v. Travelers Ins. Co., 514 U.S. 645, 668

(1995) (finding insufficient economic effect on administra-

tion for preemption).

In fact, Castonguay supports the decision in this case.

As the Court explained, ERISA does not “regulate those

relationships where a plan operates like any other com-

mercial entity — for instance, the relationship between the

plan as its own employees, or the plan and its insurers or

creditors.” 13a (emphasis in original) (quoting Castonguay,

984 F.2d at 1521-22). See also Mackey v. Lanier Collection

Agency & Serv., Inc., 486 U.S. 825, 832 (1988) (explaining

that ERISA plans will be subject to suits under § 502 as

well as a “second type of civil action . . . for run-of-the-

mill state law claims such as unpaid rent, failure to pay

20

creditors .. . [that] are relatively commonplace.”). Thus, it

is well recognized that the relationship between the plan

and a creditor may fall outside the scope of ERISA pre-

emption. The petitioners have established no basis to

question that conclusion here. See Lordmann Enterprises,

Inc. v. Equicor, Inc., 32 F.3d 1529, 1532-34 (11th Cir. 1994);

Hospice of Metro Denver, Inc. v. Group Health Ins., 944 F.2d

752, 754-56 (10th Cir. 1991).

In addition, neither Smith v. Provident Bank, inc., dis-

cussed above, nor Glazier & Glassworkers Union Local No.

252 Annuity Fund v. Newbridge Securities Inc., 93 F.3d 1171,

1185 (3d Cir. 1996), stands for the petitioners’ overly

broad view that “when ERISA regulates a plan, it occu-

pies the field of duties of care regarding the plan -

fiduciary or other - and leaves no room for state law

duties between the parties thereto.” Norcal Pet. at 20.

Petitioners’ argument ignores this Court’s decision in

Pegram and would make ERISA the source of law for all

possible claims between ESOP participants and their

employer — which it clearly is not. See Egelhoff, 532 U.S. at

146 (“[W]e have recognized that the term ‘relate to’ can-

not be taken ‘to extend to the furthest stretch of its

indeterminacy,’ or else ‘for all practical purposes pre-

emption would never run its course.’ ”) (quoting Trav-

elers, 514 U.S. at 655).

Petitioners’ argument also ignores the material differ-

ences between the claims in Smith and Glazier and the

note holders’ claims here. Smith and Glazier addressed

entirely different claims. As noted above, the plan partici-

pant in Smith asserted a claim against an ERISA fiduciary

for plan benefits arising from the mismanagement of the

participant’s plan assets. See Smith, 170 F.3d at 612-14.

21

The Court of Appeals’ opinion in Glazier, which does not

even address complete preemption, offers even less sup-

port for petitioners’ argument. Unlike this case, the action

in Glazier was brought by an ERISA plan to recover the

loss of plan assets against a party alleged to have acted as

an ERISA fiduciary in causing the loss. The Third Circuit

reversed the district court’s decision that the state law

claims were conflict preempted under ERISA and

remanded for the district court to determine whether the

defendant was acting as an ERISA fiduciary when it

allegedly caused the loss. See Glazier, 93 F.3d at 1182. This

in no way conflicts with the Court’s conclusion here that

the note holders’ claims exist “irrespective of the status of

any of the Defendants as fiduciaries of an ERISA plan,”

and “do not concern any plan fiduciaries in their capacity

as such.” 19a.

The petitioners’ other cases are similarly inapposite

and overstated. The Bank cites to two cases from the

Second Circuit for the unremarkable and inapposite prop-

osition that “alternative state law theories for conduct

actionable under ERISA” are preempted. See Bank Pet. at

16 (citing LoPresti v. Terwilliger, 126 F.3d 34, 41 (2d Cir.

1997) (“This common law conversion claim to recover

losses to the Funds is nothing more than an alternative

theory of recovery for conduct actionable under ERISA

and as such is preempted by ERISA.”) (internal quota-

tions omitted), and Diduck v. Kaszycki & Sons Contractors,

Inc., 974 F.2d 270, 288 (2d Cir. 1992) (alleging failure to

fund the plan according to plan’s terms)). The Bank also

erroneously suggests a parallel between LoPresti and this

case by miscasting the Court’s opinion, which affirma-

tively rejected the view that the claims in this case

22

involved plan assets in the manner meant by LoPresti, a

suit alleging that the defendants converted funds that

belonged to the plan. See LoPresti, 126 F.3d at 37; Bank

Pet. at 16.

Norcal cites two cases that involved suits against

plan administrators for the denial of benefits for the

proposition that claims cannot be stated on “parallel state

law relationships,” Norcal Pet. at 23-24 (citing Hull v.

Fallon, 188 F.3d 939, 943 (8th Cir. 1999), cert. denied, 528

U.S. 1189 (2000), and Jass v. Prudential Health Care Plan,

Inc., 88 F.3d 1482 (7th Cir. 1996)), and two employment

cases for the view that suits cannot be maintained on the

basis of “dual capacities,” Norcal Pet. at 22-23, 23 n.12

(citing Smith v. Dunham-Bush, Inc., 959 F.2d 6, 8 (2d Cir.

1992), and Bartholet v. Reishauer A.G. (Zurich), 953 F.2d

1073 (7th Cir. 1992)).4 However, as with LoPresti and

Diduck, the courts’ analysis in each case was premised on

the conclusion. that the claim was, in fact, a claim for

benefits under ERISA and therefore the courts found the

state law claim preempted on that basis. See Hull, 188 F.3d

at 943 (“In short, although Hull’s characterization of his

claims sound in medical malpractice, the essence of his

claim rests on the denial of benefits.”); Dunham-Bush, Inc.,

959 F.2d at 12 (“Ultimately, Smith is no different from any

other plan participant suing for added benefits under a

4 Norcal also argues that Dunham-Bush, Inc. and Bartholet

are relevant because they establish that ERISA can preempt

contract claims arising from contracts that predate the ERISA

relationship. See Norcal Pet. at 22-23, 23 n.12. However, the

Court of Appeals’ decision here did not turn on the order in

which the ESOP was created and the Indenture agreement

signed, which makes Norcal’s argument superfluous.

; 23

claim that the employer promised additional monies to

the participant.”). These cases, therefore, do not stand for

the legal rule that all state law claims between possible

ERISA parties must be preempted, or completely pre-

empted, as petitioners suggest. They are not in conflict

with the rule applied by the Court of Appeals in this case

in light of the Court’s determination that the state law

claims were legally and factually distinct from any claims

that could be brought under ERISA.

2. Contrary To The Bank’s Argument, The

Court Did Not Hold That ESOPs Are

Excluded From ERISA Coverage.

In an effort to create a conflict, the Bank mischarac-

terizes the Court of Appeals’ opinion. Contrary to the

Bank’s assertion, the Court of Appeals’ decision is not

tantamount to a rule that all transactions subject to

ERISA’s statutory exemptions are necessarily or for ail

purposes “outside of the scope of ERISA.” Bank Pet. at

14.

Additionally, the Court’s decision - that none of the

alleged ERISA-regulated relationships was infringed by

the claims - a conclusion the Court reached based on its

factual analysis of the note holders’ complaint - was not,

as the Bank alleges, “grounded” merely on the fact that

the transaction giving rise to the issuance of the notes by

the ESOP was an “exempt” transaction. Bank Pet. at 13.

In fact, the Court discussed the exemption from the pro-

hibited transaction rules in one part of its conflict

24

preemption analysis, which addressed one of the three

ERISA-regulated relationships that petitioners argued

were infringed by the claims. The Court explained:

[T]he state law claims alleged in the initial com-

plaint did not implicate the prohibited transac-

tion provision, which serves ERISA’s purposes

by protecting a plan’s participants and benefici-

aries from a depletion of plan assets through

shady, inside deals. Indeed, the claims do not

remotely concern the objectives of ERISA.

12a (citations and quotations omitted).

For this reason, the Court of Appeals concluded that

the status of some note holders as “parties in interest”

was irrelevant to their claims as note holders. 12a-13a.

The fact that the claims were based on notes issued in a

transaction that was exempt from ERISA’s prohibited

transaction provision only added additional support for

the Court’s conclusion that the note holders’ claims did

not improperly infringe upon any ERISA-regulated rela-

tionship.

Indeed, the Court of Appeals contrasted this case

with its decision in Rutledge v. Seyfarth, Shaw, Fairweather,

& Geraldson, 201 F.3d 1212, 1222 (9th Cir.), amended by 208

F.3d 1170 (Sth Cir.), cert. denied, 531 U.S. 992 (2000),

where, unlike this case, the claims were premised on an

ERISA-regulated relationship between the plan and a

party in interest “in the very respects governed by

ERISA’s regulation of prohibited transactions.” 12a. The

difference, as noted by the Court of Appeals, is that the

note holders’ claims in this case “do not remotely concern

the objectives of ERISA,” and as a result, “do not bear

upon any ERISA-governed relationship.” Id. The Court of

25

Appeals’ factual analysis of the note holders’ claims and

the decision that those claims are not preempted cannot

support the Bank’s characterization of the decision as

promulgating a rule that “transactions subject to ERISA’s

statutory exemptions are outside the scope of ERISA.”

Bank Pet. at 14 (emphasis added).

Moreover, even allowing for the Bank’s shading of

the Court of Appeals’ decision, the cases relied upon by

the Bank to demonstrate an alleged conflict do not sup-

port its argument. In fact, in Martin v. Feilen, 965 F.2d 660

(8th Cir. 1992), the Court of Appeals for the Eighth Cir-

cuit rejected the “sweeping approach” to ERISA preemp-

tion that the petitioners rely on here. See Feilen, 965 F.2d

at 665-66. Like the Court of Appeals’ factual analysis of

the note holders’ claims, the Court in Feilen explained

that a specific analysis of the challenged transactions was

necessary in order to determine whether they “suffi-

ciently involved the ESOP to implicate ERISA fiduciary

duties.” Id. at 665. Moreover, Feilen is consistent with the

Court of Appeals’ analysis in recognizing that ESOP

fiduciaries are “not subject to ERISA’s fiduciary duty

requirements [for actions] made in their capacity as cor-

porate officers, not as plan administrators.” Id. at 666.

Clearly, there is no conflict with Feilen.

The Bank’s other case, Moench v. Robertson, 62 F.3d

553 (3d Cir. 1995), is similarly unrelated and also does not

conflict with the Court of Appeals’ decision. In Moench,

the Court of Appeals for the Third Circuit held that

ERISA fiduciaries could be liable for failing to diversify

ESOP plan assets even though ESOPs are permitted to

hold non-diversified portfolios. See Moench, 62 F.3d at

569-70. Moench, therefore, stands for the proposition, not

26

relevant here, that when the suit involves a violation of

ERISA’s fiduciary duties, an exemption may not provide

a complete merits defense. More telling, however, is the

Third Circuit’s agreement in Moench with the principle,

relied on by the Court of Appeals in this case, that

fiduciary status is not an “all or nothing” concept. Id. at

561. In particular, Moench noted the rule, followed by the

Court of Appeals here that, “[a] court must ask whether a

person is a fiduciary with respect to the particular activ-

ity in question.” Id. In this case, the note holders’ com-

plaint did not allege violations of ERISA fiduciary duties,

or any other right created by ERISA. The Court of

Appeals, therefore, correctly rejected petitioners’ argu-

ment that the note holders’ claims were preempted

merely because the notes were issued in an exempt trans-

actiori. Instead, the Court analyzed the note holders’

claims and found that they did not involve the ESOP

fiduciaries in their capacity as such. 16a. Neither Moench

nor Feilen is to the contrary.

> » oa

As a last ditch argument, the Bank suggests that a

writ of certiorari “may” be appropriate in light of Moran v.

Rush Prudential HMO, Inc., 230 F.3d 959 (7th Cir. 2000),

cert. granted, 121 S. Ct. 2589 (2001), because “the Seventh

Circuit held that the case was properly removed even

though the claim was not preempted by ERISA.” Bank Pet.

at 19 (emphasis added).5 Moran has no application to this

5 In this discussion, the Bank also cites Buce v. Allianz Life

Ins. Co., 247 F.3d 1133 (11th Cir. 2001). However, Buce did not

hold that ERISA permitted removal of a case that was not

preempted by ERISA. Rather, the question in Buce was whether |

27

case as it involved a state law arguably falling within the

insurance exception to ERISA preemption. In any event, —

the Bank’s argument only serves to undermine peti-

tioners’ position by focusing the jurisdictional inquiry on

the issue of displacement. If this Court were to adopt a

rule of complete preemption that eliminated the element

of conflict preemption, the decision in this case would be

the same. As has been established, the claims in this case

neither fall within the scope of an ERISA provision that

the note holders can enforce via § 502(a), nor require an

interpretation of a contract governed by federal law as

the Seventh Circuit’s test requires. See Moran, 230 F.3d at

967.

CONCLUSION

The petition of Bank of America and the petition of

Norcal Waste Systems, Inc. and Norcal Waste Systems,

Inc. Employee Stock Ownership Plan and Trust fail to

present any issue worthy of review. Petitioners’ argu-

ments come from their disagreement with the Ninth Cir-

cuit Court of Appeals’ analysis of the removed complaint

and mischaracterizations of the Court’s opinion. The

Court of Appeals’ decision is correct and does not conflict

the Court could look to state law to interpret the terms of an

ERISA-governed insurance plan when the insurance policy

included a choice of law provision. See Buce, 247 F.3d at 1148; see

id. at 1150 (Barkett, J., concurring) (“The question before this

Court is whether ERISA precludes the parties to an agreement

from using state law to define an ERISA contract’s terms. In the

absence of any compelling rationale to the contrary, I am not

persuaded that ERISA sweeps so broadly.”).

28

with the decision of any other Circuit. Accordingly, the

petitions should be denied.

Respectfully,

Rosert C. GEBHARDT

STEPHEN H. Dye

Attorneys for Respondents

Julio Abraham, et al.

SCHNADER HARRISON SEGAL & Lewis LLP

601 California Street, 12th Floor

San Francisco, CA 94108-2817

(415) 364-6700

Dated: March 18, 2002