Petition for Writ of Certiorari — Williams v. Ashland Engineering

Supreme Cor J:

r {LED

ie 941804 MAY 2 - 1995!

No.

In The

Supreme Court of the Hnited States

. a

October Term, 1994

WILLIAM WILLIAMS, et al.,

Petitioners,

VS,

ASHLAND ENGINEERING, etal.,

-and-

UNITED STATES FIDELITY & GUARANTY CO. and R.W.

GRANGER AND SONS, INC.,

Respondents.

Petition for Writ of Certiorari to the United States Court of

Appeals for the First Circuit

PETITION FOR WRIT OF CERTiORARI

ROBERT O. BERGER, III

Attorney for Petitioners

470 Atlantic Avenue

llth Floor

Boston, Massachusetts 02110

(617) 423-7575

Le llate (800) 3 APPEAL * (800) 5 APPEAL « (800) BRIEF 21

46

QUESTIONS PRESENTED FOR REVIEW

1. Does the Employment Retirement Security Act (ERISA),

29 U.S.C. §§1001 et seg. preempt a Massachusetts public works

performance bond statute, Mass. Gen. L. ch. 149, § 29 which is

remote from the funding, management and control of any ERISA

plan?

2. Does the Massachusetts law of suretyship control the

claim?

3. Does ERISA’s insurance exemption clause bar the

application of preemption principles to the Massachusetts law?

ii

LIST OF PARTIES TO THE PROCEEDINGS

Plaintiffs-Appellants:

William Williams, Charles DeRosa, Walter Ryan, Jr., George

Davagian, Jr., William Reynolds, and John Shaughnessy, Jr.,

Trustees of International Union of Operating Engineers Local 4

Pension Fund, and James T. Griffin, William Reynolds, Jr., Robert

Berry, James L. Conway, Dominic Papagini, and John

Shaughnessy, Jr., Trustees of International Union of Operating

Engineers Local 4 Health and Welfare Fund,

Defendants-Appellees:

United States Fidelity and Guaranty Company and R. W.

Granger & Sons, Inc.

iii

TABLE OF CONTENTS

Page

Questions Presented for Review ...............0005: i

List of Parties to the Proceedings ............eseceees ii

EE CSch ses (Addi bade cnd sevesuades iii

SL 5d '\' 6 kod Hoden Vaiws bocce ti Ni CWewbs iv

EE Cas bac ckdset esr ecdet wees ecsbabe ]

NL on acs bee sesinpeaicneees ees 1

Statutory Provisions Involved ..............-..000- 2

NE be chcvadecesccecwntvedeéwers 2

A. The Course of Proceedings in the Courts Below .. 2

Er ee eer err ry ere 3

Reasons for Granting the Writ ...................4.. 4

I. Mass. Gen. L. ch. 149, § 29 is too remote to

MEG «2b eGaviedsbes ss ¥ebeeeeeses +

II. Under the Law of Massachusetts, the respondents

SOP oR ea T AT ELE TT Eee 10

III. ERISA’s insurance exemption bars preemption. . 12

ee Fei es ewes oko ec eH ees hw OCR oa 15

iv

Contents

Page

TABLE OF CITATIONS

Cases Cited:

Continental Bronze Co. v. Salvo & Armstrong Steel Co.,

Inc., 8 Mass. App. Ct. 799, 397 N.E. 2d 1143 (Mass.

RODE TEPE) cae 'iiinid eetieess eR 10

Cuomo v. Travelers, cert. granted, October 7, 1994, Docket

Nos. 93-1408, 93-1404, 93-1415 ................. 12

Fort Halifax Packing, Inc. v. Coyne, 482 U.S. 1(1987) ..6,7,8,9

Giardello v. Balboa Ins. Co., 837 F.2d 1566 (11th Cir.

SRG) KA dsan scccbtndaaddadweseesan cn eee 10

Gilbert v. Burlington Indus., 765 F.2d 320 (2d Cir. 1985),

aff’d, 477 U.S. 901, 106 S. Ct. 3267, 91 L. Ed. 2d 558

CSOUE cx Kev ncak ecko tnded week eeeeeees 6

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (1990) .. 5

Keystone, Chapter, Etc. v. Foley, 37 F.3d 945 (3rd Cir.

1994), petition for cert. filed, 61 U.S.L.W. 1264

te ee ge. Bere ree ea mn ye ie

Kwatchler v. Massachusetts Service Employment Pension

Fund, 879 F.2d 957 (1st Cir. 1989) ..........c0000- 9

Local 538, etc. v. United States Fidelity and Guaranty

Company, U.S. Dist. Ct. Vermont, Slip Op. 2:93-cv-69,

appeal pending in Second Circuit ..............4.. 10, 11

Vv

Contents

Page

Mackey v. Lanier Collections Agency & Ser., Inc., 486 U.S.

PCED ds 6 Fd tetas Roa naa ee ee ed talwken 10

Massachusetts v. Morash, 490 U.S. 107 (1989) ......... 7,8,9

McCoy v. Massachusetts Institute of Technology, 950 F.2d

13 (1st Cir. 1991), cert. denied, 112 S. Ct. 1939 (1992)

EO PO RO ae PTL reer Te ig Ras 14

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724

CRDi isn eavae se cankneees igsannt cael 12, 13,14

Miami Valley Carpenters Dist. Council Health & Welfare

Fund v. USF&G Company, 590 F. Supp. 61 (D.C. Ohio

SRN OE ple nO PES Rese rir ease rr age reel 8 10, 11

Minn. Chapter of Assoc. Builders v. Dept. Labor, 47 F.3d

FPS Ce Fee nes 6400 e8 0 66ks ete 1,5,9

New York Life Ins. Co. v. Hardison, 199 Mass. 190, 85 N.E.

WC his cewhedcwedeecviseuakeececieees 12

Pace v. Signal Technology Corp., 417 Mass. 154, 628 N.E.

DEE, BP occ pec Cicercnnsacedieaeceen 6

Peters v. Hartford Accident & Indemnity Co., 377 Mass.

863, 389 N.E. 2d 63 (Mass. 1979) ............000.- 14

Shaw vy. Delta Air Lines, Inc., 463 U.S. 85 (1983) ....... 7,5

Teper v. Park West Galleries, Inc., 431 Mich. 202, 427

ik & fr | per nner gine 6

vi

Contents

Page

Textile Workers Union of America v. Lincoln Miils of Ala.,

SSD Ue GIR CPEE) cdnvcecsesevereuabeeesseeeee 9

United States v. Carter, 353 U.S. 210 (9th Cir. 1957) .... 8

Statutes Cited:

SOU BA. BIE oe cseecevevtenssesssa0vereeeesenas 9

MUSE GISMD) bs cee vcsvcc duties een |

SOU BS. SIME we hiss tvedevisiileiveenbenceines |

y hbk Xe Pk) Pee eerie covindbnucvesedevaneed |

SB USG A. SUITE) cc tikdsce césineceviaueane 2

SOUS. GSI) oii cisecécctésssicgieeiwrnmen 1

SPU BAF NONE: | iccctccdcctecsctisanasbars passim

SP USL, FATS 0 bc cv tnd nnnbesecchneant 3

FOU GA GID: cc ccccieesnsadussavevaceeleun 2

SOUSA. SERGE) oc cccucncucvssatessdcutaeses 4

GC BAL BTPOE: oo ousnceccscs cesiviwsseoneeee 8

FOU BL. GSPN, cc cccunccusentscecusnueb uae 8

vii

Contents

Page

Mass. Gen. L. ch. 149,§29 ............-- i, 2,4, 5,8, 12, 13, 14

Mass. Gen. L. ch. 175, § 47B ...... ccc ccccnccccccces 12,13

Mass. Gen. L. ch. 175, § 105 .......ccccccccccccceces 13

Mass. Gen. L. ch. 175, § 107 ... 0... ccc cesccccrcceces 13

Mass. Gen. L.ch.176D ..........ccececeeecccecees 12

Rule Cited:

Federal Rule of Appellate Procedure40 ...........--. 1

Other Authorities Cited:

120 Cong. Rec. 29197 (1974) .... 2... cece cece e renee 4

Couch on Insurance 2d, Vol. 15A, § 57:115-128 (1994 ed.)

sii Seki cee was ae pe bRNSS E6G4 whee OHO dee 0 il

Couch on Insurance 2d 57:129-134 ........---eeeeees 10

U.S. Dept. of Labor, Advisory Opinion, April 5, 1993, W.L.

St gp Sn pier Pt f aie 2 ho ere. ee er ee 13

APPENDIX

Appendix A — Opinion of the United States Court of

Appeals for the First Circuit Dated January 31,1995 .. la

viii

Contents

Appendix B — Judgment and Opinion of the United States

District Court for the District of Massachusetts Dated

SOMO TS, SIRS oon th inca cbsVer sane deeneds

Appendix C — Order Denying Petition for

Reconsideration Entered February 21,1995 .........

Appendix D — Order of the First Circuit Court of Appeals

Denying the Petition for Rehearing Entered February

Pee re OL Pires op ere re

Page

12a

20a

|

OPINIONS BELOW

The opinion of the United States Court of Appeals which is

the subject of this Petition was rendered on January 31, 1995 and

is reported as Williams v. Ashland Engineering Co., Inc., __ F.3d

__ , 1995 WL 29559 (Ist Cir. 1995).

A judgment was entered in Petitioner’s suit styled Williams

v. Ashland Engineering Co., Inc. on September 12, 1994 by the

United States District Court for the District of Massachusetts in

Civil Action No. 92-11733 and is reported as Williams v. Ashland

Engineering Co., Inc., 863 F. Supp. 46 (1994).

These opinions are reproduced in the Appendix to this

Petition.

STATEMENT OF JURISDICTION

Petitioners seek review of a judgment of the Court of

Appeals for the First Circuit entered on January 31, 1995. A

Petition for Rehearing was timely filed and denied on February

15, 1995. App. 21a. Another petition for rehearing pursuant to

FRAP 40 was timely filed and was denied on February 21, 1995.

App. 20a. Jurisdiction in the trial court was based on Title 28,

United States Code § 1331 and jurisdiction in the Court of

Appeals was based on Title 28, United States Code § 1291.

This Court has jurisdiction pursuant to Title 28, United

States Code, §§ 1254(1) and 2101(c) and Supreme Court Rule 10.

There is a conflict between the opinion of the First Circuit Court

of Appeals in this case and those of two other circuit courts of

appeal on the issues decided by the court below as to ERISA

preemption. See Williams, supra, at 5a-1la, and compare with

Minn. Chapter of Assoc. Builders v. Dept. Labor, 47 F.3d 975,

979, 980 (8th Cir. 1995) or Keystone, Chapter, Etc. v. Foley, 37

2

F.3d 945 (3rd Cir. 1994), petition for cert. filed, 63 U.S.L.W. 3564

(U.S. Jan. 17, 1995). This First Circuit Court of Appeals has

settled an important question of the federal law of ERISA which

has noi been, but should be, settled by this Court. See also,

Cuomo v. Travelers, 14 F.3d 708 (2nd Cir. 1993), petition for cert.

allowed, 61 U.S.L.W. 1264 (U.S. October 17, 1994).

STATUTORY PROVISIONS INVOLVED

Mass. Gen. L. ch. 149, § 29 provides in pertinent part that

“trustees . . . authorized to collect such payments for health and

welfare plans. . . shall be entitled to the benefit of the security. . .

for a maximum of two hundred and forty calendar days”.

29 U.S.C. § 1144(a) provides in pertinent part that ERISA

preempts every state law which “relates to an employee benefit

plan....”

29 U.S.C § 1144(b)(2)(A) provides in pertinent part that

nothing in ERISA “shall be construed to exempt or relieve any

person from any law of any state which regulates insurance,

banking, or securities.”

STATEMENT OF THE CASE

A. The Course of Proceedings in the Courts Below

The petitioners are the trustees of the International Union of

Operating Engineers Local 4 Pension and Health and Welfare

Funds, which are employee benefit plans governed by ERISA.

On July 30, 1992, the petitioners amended their complaint. On

August 24, 1992, respondents’ counsel filed their appearances.

On September 15, 1992, respondents filed answers to the

amended complaints. The answers lacked the affirmative defense

of preemption. Discovery was completed as of April 15, 1993,

3

and the deadline for filing summary judgment motions was on

July 1, 1993. Both parties filed motions for summary judgment.

Count I of the amended complaint is a claim against Ashland

for employer contributions under § 502(a)(3)(B)(ii) of ERISA,

29 U.S.C. § 1132(a)(3)(B)(ii). Ashland has not defended this

action. Count II states a claim against USF&G for payment under

the bond because “plaintiffs demanded payment under such bond

. .. in accordance with federal and state law but USF&G refused

and neglected to pay such amount for hours worked by members

of Local 4.” Count III seeks to reach and apply the surety bond

obtained by Granger.

The petitioners moved for summary judgment on Counts II

and III. USF&G and Granger moved for summary judgment on

the same counts. The District Court entered summary judgment

for USF&G and Granger, and entered separate judgments for

them on September 12, 1994. On January 31, 1995, the Court of

Appeals for the First Circuit affirmed the District Court and on

February 15, 1995 denied the Petition for Rehearing.

B. Statement of Facts

Local 4 members of the International Union of Operating

Engineers performed heavy machinery work for defendants

Ashland Engineering Company, Inc., C&B Construction

Company, Inc., and Ashanti/Ashland (collectively “Ashland”),

the subcontractors for a Massachusetts Port Authority

construction project at Logan Airport in East Boston,

Massachusetts in 1991. Ashland abandoned performance and

became delinquent in its employer contributions. Respondent

R.W. Granger and Sons, Inc. (“Granger”), the general contractor

for the Massport project, obtained a surety bond from respondent

United States Fidelity and Guaranty Company (“USF&G”). The

labor and materialmen’s performance bond dated April 25, 1990

4

was in the sum of $23,191,643 and was purchased by Granger as

principal and USF&G as surety relative to a Massport

construction project of cargo buildings at Logan Airport. The

bond secures payment for labor, materials, employer

contributions to “health and welfare funds,” and other expenses

of the Massport project. The payee of the USF&G surety bond is

Massport.

REASONS FOR GRANTING THE WRIT

I.

MASS. GEN. L. CH. 149, § 29 IS TOO REMOTE TO

PREEMPT ERISA.

Congress enacted 29 U.S.C. § 1144 (a), generally referred to

as the ERISA “preemption clause,” in order to“. . . round out the

protection afforded participants by eliminating the threat of

conflicting and inconsistent state and local regulation,” 120

Cong. Rec. 29197 (1974) (remarks of Rep. John Dent, Chairman

of the Subcommittee on Education and Labor). Congress defined

“state law” to include “all laws, decisions, rules, regulations, or

other state action having the effect of law, of any state.” 29 U.S.C.

§ 1144(c)(1). The lower court, however, in finding ERISA

preemption in this action, did not preserve carefully crafted

protection for participants provided by the Commonwealth of

Massachusetts.'

The result reached by the lower court is not necessary and

can be avoided by this Court’s clarifying what laws relate to

ERISA plans and what laws do not. This Massachusetts statute

1. Inexplicably, the lower court never considers that plaintiffs are

trustees for both a pension plan and a health and welfare plan. Section 29 says

absolutely nothing about pension plans but the District Court finds preemption

of a pension fund claim.

5

does not. The lower court’s ruling has the effect of taking 18 cents

out of every dollar earned by participants.

Recently, the Third Circuit stated that the “test for

preemption in this regard is whether the existence of ERISA

plans is necessary for the statute to be meaningfully applied.”

Keystone, supra, at 957. The lower court in this action says this

standard does not apply because the Keystone Court relied on

First Circuit authority for ERISA preemption of the

implementation aspect of the law. However, even more recently,

in Minn. Chapter, supra, at 975 to 981, the Eighth Circuit did not

find preemption of the implementation aspect of the state law;

and, above all, it found impermissible ERISA preemption of a

state wage and labor statute. Under the application of the Minn.

Chapter test, Mass. Gen. L. ch. 149, § 29 would clearly not be

preempted by ERISA.

The payment bond involved here functions “irrespective of

the existence of an ERISA plan.” Ingersoll-Rand Co. v.

McClendon, 498 U.S. 133, 139 (1990). Statutes like the payment

bond statute of Massachusetts may make incidental reference to

plans without coming within one of the categories of laws that are

preempted by ERISA. ERISA preemption should not disrupt

State statutory claims that may “relate to” a plan only in the

broadest sense of the term. This Massachusetts statute also refers

to unemployment benefits among many other matters. Moreover,

the payment bond provision here does not “relate io” or

“regulate” any ERISA plan, since it does not create any

additional funding mechanisms and does not single out ERISA

plans for special treatment.”

2. The lower court’s analysis seems to be that any mention of benefits

triggers preemption. At the most Section 29 mentions a kind of benefit scheme

but says nothing about employee benefit plans. Section 29 speaks of a default

Causing a right to payment under a bond but the law has nothing to say about

benefit plans’ regulation. ERISA does not preempt state employee benefits

(Cont'd)

6

The lower court ignores the highest court of Massachusetts

in its decision. In Pace v. Signal Technology Corp., 417 Mass. 154

at 160, 628 N.E.2d 20 at 23 (Mass. 1994), the Supreme Judicial

Court of Massachusetts held that:

When the resolution of state law claims will

neither “determine whether any benefits are

paid” nor “directly affect the administration

of benefits under the plan,” the claims do not

“relate to” ERISA and accordingly are not

pre-empted.’

Because in the instant action petitioners are not seeking benefits

under a plan, and because, if they ultimately prevail, any award

against respondents would not “directly affect the administration

of benefits under the plan,” petitioners’ claims do not relate to

ERISA and are not preempted. As the Supreme Judicial Court

explained in Pace, id.:

Congress’s desire for a broad Federal pre-

emption of State laws relating to benefit plans

was motivated by its desire to encourage

employers to maintain plans in favor of

employees, by eliminating the risk of

inconsistent and confusing layers of

regulation.

As the Supreme Judicial Court emphasized, “that Statute whose

(Cont'd)

laws, but merely laws relating to plans. See Fort Halifax Packing, Inc. v.

Coyne, 482 U.S. 1 (1987).

3. See also, Gilbert v. Burlington Indus., 765 F.2d 320, 327 (2d Cir.

1985), aff'd, 477 U.S. 901, 106 S. Ct. 3267, 91 L. Ed. 2d 558 (1986). See Teper

v. Park West Galleries. Inc., 431 Mich. 202, 214,427 N.W. 2d 535 (1988).

7

clear purpose was to benefit employees has become widely used

as a shield to protect employers from any deceptive and wrongful

acts they may have committed against their employees is an irony

we find unacceptable as a governing principle of law.” Id. See

also, Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9-11 (1987).

The United States Supreme Court has recognized that, in

seeking to preempt all state laws that “relate to” employee benefit

plans, Congress could not have intended to preempt all laws

having any impact on such plans. “Some state actions may affect

employee benefit plans in too tenuous, remote or peripheral a

manner to warrant a finding that the law ‘relates to’ the plan.”

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983). In Fort Halifax,

supra, the Supreme Court held that Maine’s severance pay statute

requiring employers to provide a one-time severance payment in

the event of a plant closing was not preempted by ERISA (or the

NLRA). The Court declared that the ERISA preemption clause

does not preempt state laws relating to employee benefits, but

only those laws relating to employee benefit plans. Id. at 11.

In Massachusetts v. Morash, 490 U.S. 107 (1989), relying

upon Fort Halifax, the Court held that a state criminal statute

requiring an employer to pay all wages due, including vacation

pay, on the day of discharge was not preempted by ERISA.

Noting that a number of other states had such statutes, the Court

stated:

The States have traditionally regulated the

payment of wages, including vacation pay.

Absent any indication that Congress intended

such far-reaching consequences, we are

reluctant to so significantly interfere with the

“separate spheres of governmental authority

preserved in our federalist system.”

8

Morash, supra, 490 U.S. at 119, quoting Fort Halifax, 482 U.S. at

19. In fact, the fringe benefits in question here are really nothing

more than deferred wages and therefore are only peripherally

related to ERISA. See United States v. Carter, 353 U.S. 210, 220

(9th Cir. 1957) (“these contributions are as much ‘justly due’ to

the employees who have earned them as are the wages payable

directly to them in cash”’).

Indeed, the precedent was established in the closely

analogous situation presented in United States v. Carter, 353 U.S.

at 210, where the issue was the liability of a surety to fringe

benefit funds on a payment bond furnished by a contractor, as

required by the Miller Act (40 U.S.C. § 270a et seq.), for the

protection of persons furnishing labor or materials for the

construction of federal buildings. The statute provided that every

“person who has furnished labor or material in the work provided

for in such contract ... shall have the right to sue on such

payment bond ... for the sum justly due him.” (40 U.S.C.

§270b(a)). Compare Mass. Gen. L. ch. 149, § 29. The Supreme

Court stated: “The Miller Act represents a congressional effort to

protect persons supplying labor and material for the construction

of federal public buildings. . . .” 353 U.S. at 216.

The Court concluded that the trustees of the funds could

maintain an action for wages and benefits on the performance

bond for a public building. The Supreme Court reasoned in part

that the “contributions were a part of the compensation for the

work to be done by [the] employees” and the trustees “stand in the

shoes of the employees and are entitled to enforce their rights.”

Carter, supra, 217-218, 220. There is, then no substantive

difference between the Massachusetts bond statute and the Miller

Act except that the Miller Act applies to federal buildings and the

performance bond statute applies to state buildings. If the

preemption rules are expanded to subsume Carter, Local 4

workers would have full wage protection on a federal surety bond

ee, Oe Fe ee SE ee Pe ee Se ee

9

when they build the new federal courthouse but not when they

build a hanger at Logan Airport. In Minn. Chapter, supra, at 980,

preemption would impair the purposes of the Fitzgerald Act, 29

U.S.C. § 50, and here ERISA preemption would bar the

protections of the Miller Act as made available to Massachusetts

participants. See also, Textile Workers Union of America v.

Lincoln Mills of Ala., 353 U.S. 458 (1957). “Congress expected

that a federal common law of rights and obligations under ERISA

plans would develop”; Kwatcher v. Massachusetts Service

Employment Pension Fund, 879 F.2d 957, 976 (ist Cir. 1989).

The federal common law incorporation of this state Miller Act

law as federal law carries out the American tradition of providing

security to laborers-engaged in construction work.

ERISA requires a state to ignore the existence of ERISA

benefits when considering overall remuneration to workers. The

Court has allowed the inclusion or implication of ERISA plans in

generally valid state legislation. See Shaw v. Delta Air Lines, Inc.,

463 U.S. 85, at 106 and 108 (1983) (approving disability benefits

requirements that could be satisfied through ERISA plans).

Indeed, a law would be preempted if it counted all remuneration

to workers except benefits from ERISA plans, for this would be

special treatment. Benefits “payable on a regular basis from the

general assets of the employer,” Massachusetts v. Morash, 490

U.S. 107, 116 (1989), and that “create[ ] no need for an ongoing

administrative program for processing claims and paying

benefits,” Fort Halifax, 482 U.S. at 12, are not preempted.

Similarly, the statute should be “meaningfully applied” in the

absence of ERISA plans if a public works contractor satisfied the

benefits component of a given prevailing wage by making

contributions for non-ERISA benefits, or by paying the

equivalent in case. Because states enact their own wage and non-

ERISA benefits regulations, Morash, 490 U.S. 107; Fort Halifax,

482 U.S. 1; Shaw, 463 U.S. 85, or collection laws, Mackey v.

Lanier Collections Agency & Ser., Inc., 486 U.S. 825 (1988),

10

employers must adjust their operations according to locale. This

administrative and financial burden arises from the “patchwork

scheme” of our federal system, a system whose “separate spheres

of governmental authority,” were not preempted by ERISA.

Petitioners submit that USF&G’s position requires an expansion

of ERISA preemption that far exceeds congressional intent and

contradicts the plain meaning of the statute.

II.

UNDER THE LAW OF MASSACHUSETTS, THE

RESPONDENTS ARE LIABLE AS SURETIES.

This case turns on whether USF&G, under the terms of its

bond, is responsible for the contributions upon Ashland’s failure

to make them. As the obligee sustained damages by the breach of

contract, USF&G is liable for damages. Proof was adduced in the

lower court that damages were suffered by petitioners. See

Continental Bronze Co. v. Salvo & Armstrong Steel Co., Inc., 8

Mass. App. Ct. 799, 397 N.E. 2d 1143 (Mass. App. Ct. 1979);

Local 538, etc. v. United States Fidelity and Guaranty Company,

U.S. Dist. Ct. Vermont, Slip Op. 2:93-cv-69, appeal pending in

Second Circuit; Couch on Insurance 2d 57:129-134 and cases

cited therein.

Allowing a surety to be sued under state surety law, poses no

threat to the ERISA framework under which employers, plan

trustees or plan sponsors must operate. Giardiello v. Balboa Ins.

Co., 837 F.2d 1566, 1569 (11th Cir. 1988). In Miami Valley

Carpenters Dist. Council Health & Welfare Fund v. USF&G

Company, 590 F. Supp. 61 (D.C. Ohio 1984), a local union and

employee trust fund sued USF&G, the respondent in the instant

case, to enforce surety bonds purchased by the contractor at the

Union’s behest. The bonds guaranteed payments that the

contractor was obligated by its collective bargaining agreement

11

to make to the funds and the Union. The court held that USF&G’s

liability arose “from the surety bonds rather than from the terms

of the plan or a collective bargaining agreement.” Jd. at 66. The

court expressly found that ERISA did not apply to that obligation.

What petitioners seek as damages are unquestionably

deferred wages as they are withheld from the employees’ wages,

at the employees’ request, for payment to the Union. In this case,

wages were withheld but never paid.

As aresult, USF&G is liable for the obligation to petitioners

as a matter of law. This right arises from the surety’s voluntary

undertaking to guarantee the contractual obligation spelled out in

the bond. The failure of the lower court to apply state surety law

results in an unfortunate result. The judgment in favor of the

surety effectively prevents those claimants, whose contract terms

require fringe benefit payments, from asserting claims against a

bond while permitting all other claimants to do so. This led to

highly inequitable results. A materialman, for example, whose

contract factored in the cost of health coverage for its employees

would be permitted to recover the full measure of its damages

from the surety, whereas claimants whose contracts expressly

apportioned labor costs between wages and fringe benefits such

as health care would be prohibited from full recovery. See Couch

on Insurance 2d, Vol. 15A, § 57: 115-128 (1994 ed.).

Moreover, it is highly inequitable for USF&G to accept hefty

premiums on this $23 million performance bond but meanwhile

escape providing labor, material and benefits payments.

12

Ill.

ERISA’S INSURANCE EXEMPTION’- BARS

PREEMPTION.

The insurance savings clause of ERISA bars preemption of

this claim because Mass. Gen. L. ch. 149, § 29 regulates

insurance. “While § 514(a) of ERISA broadly preempts state

laws that relate to an employee-benefits plan, that preemption is

substantially qualified by an ‘insurance saving clause,’

§ 514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A). . .” Metropolitan Life

Ins. Co. v. Massachusetts, 471 U.S. 724, 733 (1985). The

mandated performance bond statute as applied to insurance

companies like USF&G is a “law which regulates insurance,” and

therefore is saved from the application of the preemption clause

of ERISA. See Metropolitan Life, 471 U.S. 733-734. This Court is

considering similar problems in Cuomo v. Travelers, cert.

granted, October 7, 1994, Docket Nos. 93-1408, 93-1404, 93-

1415. \

Labor and materialmen’s bonds are subject to extensive state

regulation. See Metropolitan Life, 471 U.S. 728, n.4, citing New

York Life Ins. Co. v. Hardison, 199 Mass. 190, 85 N.E. 410

(1908). State laws, discussed in Metropolitan Life, id. at 727-

728, governing solvency, qualification of management, and

claims practices such as Mass. Gen. L. ch. 176D, or rates, apply to

performance bond insurers. Mass. Gen. L. ch. 175, § 47B was not

preempted by the Supreme Court in Metropolitan Life and Mass.

Gen. L. ch. 149, § 29 should not be preempted by this Court.

There is no reason to favor insurance laws designed to

promote public health, but not insurance laws designed to insure

payment of wages and benefits. A labor and materialmen’s bond

statute does not regulate labor-management relations as such, or

affect the free play of forces between labor and management.

13

Metropolitan Life, 471 U.S. 736. Mass. Gen. L. ch. 149, § 29, like

Mass. Gen. L. ch. 175, § 47B, obviously regulates the spreading

of risks: it was intended that the risk of defaults in the payments of

workers should be shared. Metropolitan Life, 471 U.S. 743. Mass.

Gen. L ch. 149, § 29 directly regulates an integral part of the

relationships between insurer and policyholder by establishing

the policyholder relationship with the surety, general contractor

and fund obligee on the performance bond. The practice of

writing labor and materialmen’s bonds is limited to entities

within the insurance industry. The lower court relies on Mass.

Gen. L. ch. 175, § 107 to say that surety bonds are not insurance

bonds and then to conclude that Mass. Gen. L. ch.149, § 29 does

not involve insurance. But to reach such a conclusion is a

misreading of the statute that instead proves that Mass. Gen. L.

ch. 149, § 29 regulates insurance. Mass. Gen. L. ch. 175, § 107

brings the performance bond directly under the Metropolitan Life

standard because it says “the bonds on which such company

becomes surety shall not be deemed insurance contracts as

defined in section 2, but the company shall otherwise be subject

to this chapter so far as applicable and insurance agents and

brokers shall in respect to such bonds be subject to all the

provisions of this chapter applying to them in respect to

insurance contracts.” Emphasis added. Hence by virtue of Mass.

Gen. L. ch. 175, § 107, Mass. Gen. L. ch. 149, § 29 clearly is

regulated by the insurance statutes. See also, Mass. Gen. L. ch.

175, § 105.‘

4. Arecent advisory opinion of the United States Department of Labor

under which a surety-insurer was responsible for the payment of obligations of

a trust was a “fully insured arrangement” for purposes of ERISA. USF&G’s

role under the surety bond in the instant action is indistinguishable from the

surety in the advisory opinion and casts serious doubt on the conclusions of the

District Court that surety bonds are not specifically directed toward the

insurance industry. See Advisory Opinion dated April 5, 1993, W.L. 171827*1

(ERISA).

14

The lead Massachusetts case interpreting Mass. Gen. L. ch.

149, § 29 is a case which obviously regulates insurance. See

Peters v. Hartford Accident & Indemnity Co., 377 Mass. 863, 389

N.E.2d 63 (Mass. 1979). In the Hartford case, the Supreme

Judicial Court defined expressly the duties of Hartford Accident

& Indemnity Company pursuant to Mass. Gen. L. ch. 149, § 29.

The court held that the trustees of a union pension fund were

entitled to maintain an action against the general contractor’s

surety, Hartford Accident and Indemnity Company. This was the

holding even though the employer was primarily liable for the

contributions to the funds, was a subcontractor, and had no

contractual relationship with the contractor principal on the bond

written by Hartford Accident & Indemnity Company. Hence, as

Mass. Gen .L. ch. 149, § 29 regulates insurance, ERISA does not

preempt the statute. The lower court erred in its conclusion that

this case has been implicitly overruled because the reality is that

the case is consistent with Metropolitan Life.

Mass. Gen. L. ch. 149, § 29 creates a contractual obligation

between the bonding company and the contractor or .

subcontractor who is required by law to take out a bond, which is

quite different from the mechanics’ lien situation discussed in

McCoy v. Massachusetts Institute of Technology, 950 F.2d 13, 19-

20 (ist Cir. 1991), cert. denied, 112 S. Ct. 1939 (1992) so that the

case should be limited to its facts. In MIT, the court held that the

state mechanics’ liens statute was preempted by ERISA. The

logic of the MIT case does not extend to the Trust Funds’ right to

make a wage Claim against the payment bond in the instant case.

As third-party beneficiaries of the contractual relationship

between the surety and the contractor, the Trust Funds are simply

exercising their right to collect the wage benefits which are due as

a result of the labor performed by the Trust Funds’ participants.

Besides, under Massachusetts law, it is illegal to have insurance

that does not provide coverage.

15

CONCLUSION

ERISA preemption applies only to benefit plans and not to

mere reference to benefits. The Massachusetts law here refers to

benefits but not to the benefit plan. The case should therefore be

remanded as there should be no ERISA preemption of the

Massachusetts statute, especially where losses to participants are

substantial and the “state laboratory of democracy” can devise

participant protections.

The statute governing payment of participants working for

defaulting subcontractors is clearly within the scope of the

traditional police powers of the state of Massachusetts. This

Court should clarify differing results reached by the Eighth

Circuit, Third Circuit, and First Circuit in the instant action as to

the preemptive reach of ERISA to statutes regulating labor and

wages. The lower court did not, in the alternative, have to reach

all of these preemption issues if it simply applied to a written

performance bond contract the Massachusetts law of suretyship.

In the final analysis, to rule that a performance bond statute

is Outside of the ambit of the regulation of insurance blinks at

reality and at the totality of the Massachusetts insurance statutory

scheme of performance bonds.

As a result, this Court should grant the Petitioners’

application for a writ of certiorari.

Respectfully submitted,

ROBERT O. BERGER, IIIT

Attorney for Petitioners

470 Atlantic Avenue

11th Floor

Boston, MA 02210

(617) 423-7575

la

APPENDIX A — OPINION OF THE UNITED STATES

COURT OF APPEALS FOR THE FIRST CIRCUIT

DATED JANUARY 31, 1995

United States Court of Appeals

For the First Circuit

No. 94-2046

WILLIAM WILLIAMS, ETC., ETAL.,

Plaintiffs, Appellants,

v.

ASHLAND ENGINEERING CO., INC., ETAL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Walter Jay Skinner, Senior U.S. District Judge]

Before

Selya, Boudin and Stahl, Circuit Judges.

Robert O. Berger for appellants.

Bradford R. Carver, with whom Edward F. Vena, Michael S.

Levitz, and Vena, Truelove & Riley were on brief, for appellees.

2a

Appendix A

January 31, 1995

SELYA, Circuit Judge. We are reminded today that

malapropisms, despite their semantic shortcomings, often

describe the human condition with unerring accuracy. There are,

for example, certain situations that actually do evoke the

sensation of “déja vu all over again.”’' We explain below why this

appeal falls into that category.

In McCoy v. Massachusetts Institute of Technology, 950 F.2d

13 (1st Cir. 1991), cert. denied, 112 S. Ct. 1939 (1992), the

fiduciary of several union-sponsored employee benefit plans

brought suit to enforce a lien on real property owned by a

university. He alleged that an electrical contractor hired to

construct improvements to school buildings had employed union

members to do the work; that the contractor, heedless of its

obligations under a collective bargaining agreement, neglected to

defray the workers’ employee benefit contributions; and that a

State statute, Mass. Gen. L. ch. 254, quoted in the margin,”

1. This epigram is often attributed to Lawrence P. (Yogi) Berra, a man as

famous for mangling the English language as for belting baseballs. Berra coined

many aphorisms — but not this one. See Ralph Keyes, Nice Guys Finish Seventh;

Phrases, Spurious Sayings and Familiar Misquotations 152 (1992) (noting that

“although this is commonly cited as a ‘Berra-ism,’ Yogi Berra denies ever saying

it”). The phrase’ s origin is unknown.

2. The statute provides in relevant part:

A person to whom a debt is due for personal labor

performed in the erection, alteration, repair or removal

of a building or structure upon land, by virtue of an

agreement with, or by consent of, the owner . . . shall

. .. havea lien upon such building or structure... .

(Cont'd)

3a

Appendix A

authorized the fiduciary to collect unpaid contributions by

asserting a mechanic’s lien against real property that had been

improved through the plan participants’ labor. See McCoy, 950

F.2d at 15. We held that the Employment Retirement Income

Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461 (1988),

and specifically, ERISA 514(a), 29 U.S.C. § 1144(a)

(commanding that ERISA “shall supersede any and all State laws

insofar as they may now or hereafter relate to any employee

benefit plan”), preempted use of the Massachusetts mechanic’s

lien law to recoup the unpaid contributions. See McCoy, 950 F.2d

at 18-20.

The case at bar is hauntingly reminiscent of McCoy, and,

thus, triggers the sense of déja vu. Appellants are the trustees of

certain funds (the Funds) maintained by Local 4 of the

International Union of Operating Engineers to fuel the union’s

employee benefit plans. In 1991, members of Local 4, then

employed directly or indirectly by a subcontractor, Ashland

Engineering Company (Ashland), participated in ongoing

(Cont'd)

For purposes of this chapter, a person shall include

any employee of any employer and the trustee or

trustees of any fund or funds, established pursuant to

section 302 of the Taft Hartley Law (29 USC 186),

providing coverage or benefits to said person. The

trustee or trustees of any such fund or funds shall have

all the liens under this chapter that any person has. The

trustee or trustees shall also have the right to enforce

said liens pursuant to this chapter.

Mass. Gen. L. ch. 254, § 1 (1990). The statute also specifically provides that “the

trustee or trustees of a fund or funds, described in section one, providing coverage or

benefits to any person performing labor under a written contract with a contractor,

or with a subcontractor of such contractor,” may file a lien notice, id. § 4, and

enforce the lien by a civil action brought against the property owner, id. § 5.

4a

Appendix A

construction under the auspices of the Massachusetts Port

Authority (Massport). A collective bargaining agreement

obligated Ashland to contribute monies to the Funds

commensurate with the number of hours each union member

toiled on the Massport project.

In time, Ashland experienced financial problems, became

delinquent on contributions to the Funds, and abandoned the

Massport project. Noting that the general contractor, R.W.

Granger and Sons, Inc. (Granger), had posted a performance-

and-payment bond underwritten by United States Fidelity &

Guaranty Company (USF&G), the trustees sued Ashland,

Granger, and USF&G in an effort to extract the unpaid employer

contributions.

The trustees’ amended complaint contained three counts:

count | sought to collect payments due from Ashland, count 2

sought to collect these payments from USF&G by invoking the

Massachusetts statute under which the bond had been posted,’

3. The bond statute provides in pertinent part that, when state officials

contract for construction of public buildings, they

shall obtain security by bond .. . for payment by the

contractor and subcontractors for labor performed or

furnished and materials used or employed therein... .

and for payment by such contractor and subcontractors

of any sums due trustees. . . authorized to collect such

payments from the contractor or subcontractors, based

upon the labor performed or furnished as aforesaid, for

health and welfare plans, supplementary

unemployment benefit plans and other fringe benefits

which are payable in cash and provided for in

collective bargaining agreements....

Mass. Gen. L. ch. 149, § 29(1990).

Sa

Appendix A

and count 3 sought to reach an asset of Ashland purportedly held

by Granger — the bond — and to apply the proceeds to Ashland’s

debt.

Ashland did not defend and, therefore, count 1 is no longer

velivolant. On June 1, 1993, the parties filed cross-motions for

summary judgment on the two remaining counts. The district

court granted the defendants’ motions, concluding that ERISA

preempted the section 29 claim as it pertains to employee benefit

plans, and that Granger held none of Ashland’s assets. See

Williams v. Ashland Eng’g Co., 863 F. Supp. 46 (D. Mass. 1994).

Following the entry of separate judgments, the trustees appealed.

In this venue, the trustees agree that brevis disposition is

warranted — the record reveals no genuine issues of material fact

— but they contend that the lower court ruled in favor of the

wrong parties. Affording plenary review, see, e.g., Mesnick v.

General Elec. Co., 950 F.2d 816, 822 (1st Cir. 1991), cert. denied,

112 S. Ct. 2965 (1992); Garside v. Osco Drug, Inc., 895 F.2d 46,

48 (1st Cir. 1990), we affirm.‘

The centerpiece of the trustees’ appeal — count 2 — is well

within McCoy’s precedential orbit. In McCoy, we acknowledged

that Congress painted with a broad brush when it added an

express preemption clause to the ERISA canvas. We described

that clause as “sweeping” and “extensive in its scope.” McCoy,

950 F.2d at 16. We also noted that the Massachusetts lien law at

issue in McCoy referred specifically to the trustees of employee

benefit plans and purported to grant them certain singular rights.

In our view, these features rendered the law especially vulnerable

4. We eschew any independent discussion of count 3, inasmuch as we

discern no error in the district court’s stated reasons for granting summary judgment

on that count. See Williams, 863 F. Supp. at 50.

6a

Appendix A

to preemption, for “[s]tate statutes which expressly grant

preferential benefits to ERISA plans cannot withstand the

preemptive force of ERISA 514(a).” Id. at 20; accord Mackey v.

Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 829 (1988).

Thus, McCoy made clear that, at a bare minimum, state laws

which “specifically refer to ERISA plans and grant them special

treatment” are preempted regardless of a state legislature’s good

intentions or a particular law’s consistency with ERISA’s overall

goals. McCoy, 950 F.2d at 18 (quoting Mackey, 486 U.S. at 829-

30).

The statute before us today, Mass. Gen. L. ch. 149, § 29,

invites comparison with the statute we confronted in McCoy.

Section 29 requires, inter alia, that a general contractor working

on a public project furnish bond to secure payment of “any sums

due trustees . . . for health and welfare plans.” Such plans come

under the protective umbrella that ERISA spreads over the

workplace. See 29 U.S.C. § 1002(1)(B), (3) (defining covered

employee welfare benefit plans); see also McCoy, 950 F.2d at 19-

20. Since the statue specifically refers to ERISA-regulated

employee benefit plans, and provides them with a special source

of recovery for unpaid employer contributions, McCoy governs.

Hence, the bond statute, as it applies to employee benefit plans, is

preempted.

Appellants balk at the characterization of their case as

McCoy redux. They loose an avalanche of arguments, but none is

persuasive. Only four of these arguments require comment.

First: Appellants launch a ferocious attack on McCoy,

intimating that it is wrongly decided and, therefore, should be

limited to its facts. Statutes like the mechanic’s lien law or the

bond law, they tel! us, affect employee benefit plans in “too

Ta

Appendix A

tenuous, remote, or peripheral a manner,” Shaw v. Delta Airlines,

Inc., 463 U.S. 85, 100 n.21 (1983), to warrant a conclusion that

the statutes “relate to” such plans. This attack is wide of the mark.

First and foremost, we believe that our earlier opinion was —

and is —- clearly correct (that it is, so to speak, the real McCoy).

And we perceive no rational basis on which to distinguish

between the mechanic’s lien law and section 29 for the purpose of

gauging ERISA’s preemptive reach.

Because the two statutes are quite plainly sisters under the

skin, there is also a prudential barrier that blocks the path of

appellants’ attack. In a multi-panel circuit, newly constituted

panels are, for the most part, bound by prior panel decisions

closely on point. See, e.g., Jusino v. Zayas, 875 F.2d 986, 993 (1st

Cir. 1989); Lacy v. Gardino, 791 F.2d 980, 985 (1st Cir.), cert.

denied, 479 U.S. 888 (1986). In this instance, we are bound by

McCoy.

To be sure, there are two exceptions to this manifestation of

stare decisis principles. An existing panel decision may be

undermined by controlling authority, subsequently announced,

such as an opinion of the Supreme Court, an en banc opinion of

the circuit court, or a statutory overruling. This exception is

inapposite, for nothing of the kind has transpired here. The

second exception pertains to those relatively rare instances in

which authority that postdates the original decision, although not

directly controlling, nevertheless offers a sound reason for

believing that the former panel, in light of fresh developments,

would change its collective mind. See generally Colby v. J.C.

Penney Co., 811 F.2d 1119, 1123 (7th Cir. 1987) (discussing

“complex relationship . . . between a court and its own previous

decisions”).

8a

Appendix A

Appellants try to wriggle through this loophole. They

suggest that a case recently decided by the Third Circuit casts a

new light on ERISA preemption by focussing on “whether the

existence of ERISA plans is necessary for the statute to be

meaningfully applied,” Keystone Chapter, Etc. v. Foley, 37 F.3d

945, 957 (3d Cir. 1994), and that this shifted focus renders McCoy

obsolete. However, appellants mischaracterize the holding in

Keystone. There, the court reviewed a state minimum wage

statute that did not refer explicitly to ERISA plans. After finding

that the statute failed to single out such plans for special

treatment, the court invoked the meaningfulness test to determine

whether the statute might be said to “relate to” ERISA plans

despite the absence of an express connection. See id. at 954-57.

Since section 29 does single out ERISA plans for special

swaddling, there is no need to consider the Keystone test in this

case.°

Second: Next, the trustees contend that section 29 is, in

effect, a law regulating insurance and, therefore, is shielded from

preemption by ERISA § 514(b)(2)(A), 29 U.S.C. §§ 1144(b)(2)(A)

(a savings clause that, inter alia, renders ERISA preemption

inapplicable to “any law of any. State which regulates

insurance”). This contention lacks force. In order to “regulate[]

insurance” within the purview of this exception, a law must not

merely have an impact on the insurance industry, or on particular

insurance products, but must be directed specifically toward the

business of insurance. See Pilot Life Ins. Co. v. Dedeaux, 481 U.S.

41, 50 (1987); Metropolitan Life Ins. Co. v. Massachusetts, 471

U.S. 724, 739-47 (1985). Section 29 does not satisfy this criterion

for two reasons.

5. Indeed, the Keystone court itself found McCoy to be good authority, citing

it with approval in holding that ERISA preempted a state administrative order that

did specifically single out ERISA-regulated plans for special treatment. See

Keystone, 37 F.3d at955.

9a

Appendix A

In the first place, although surety bonds often are furnished

by insurers, surety bonds are not insurance contracts, see Mass.

Gen. L. ch. 175, § 107, and they are not subject to the

commonwealth’s insurance laws. See Luso-Am. Credit Union v.

Cumis Ins. Soc., Inc., 616 F. Supp. 846, 848 (D. Mass. 1985);

General Elec. Co. v. Lexington Contracting Corp., 292 N.E.2d

874, 876 (Mass. 1973). In the second place, section 29 only

requires the posting of an acceptable bond, not necessarily the

posting of a bond underwritten by an insurance company. A cash

bond or a bond backed by, say, a letter of credit, surely would

suffice. In a real sense, then, section 29’s impact on the insurance

industry is happenstance. Consequently, the statute cannot

plausibly be deemed to be directed toward, or to regulate, the

business of insurance.

Third: Appellants claim that, here, preemption is beside the

point because the bonding company waived the defense by

failing to assert it in the pleadings. This claim prescinds from

USF&G’s answer to the trustees’ complaint — an answer that did

not mention preemption in so many words, but, rather, contained

a general denial and raised, as an affirmative defense, failure to

state a claim upon which relief could be granted.® On the facts of

this case, however, appellants’ claim is composed of more bleat

than wool.

Generally speaking, a party must set forth all affirmative

defenses in the pleadings, on pain of possible forfeiture. See Fed.

R. Civ. P. 8(c);” see also Conjugal Partnership v. Conjugal

6. USF&G also raised a second affirmative defense implicating appellants’

supposed noncompliance with conditions precedent to recovery set forth in the

bond. Given the posture of this appeal, we need not discuss the second affirmative

defense.

7. Rule 8(c) requires parties, “[i)n pleading to a preceding pleading,” to “set

(Cont'd)

10a

Appendix A

Partnership, 22 F.3d 391, 400 (1st Cir. 1994). Here, although

USF&G’s answer did not specifically mention a preemption

defense, it did contain a broader Rule 12(b)(6) defense that was

capable of encompassing preemption. Cf. McCoy, 950 F.2d at 22-

23 (upholding preemption-based dismissal pursuant to Rule

12(b)(6)). The purpose of Rule 8(c) is to give the court and the

other parties fair warning that a particular line of defense will be

pursued. See, e.g. Blonder-Tongue Labs., Inc. v. Univ. of Ill.

Found., 402 U.S. 313, 350 (1970); Knapp Shoes, Inc. v. Sylvania

Shoe Mfg. Corp., 15 F.3d 1222, 1226 (ist Cir. 1994). Hence, a

defendant who fails to assert an affirmative defense at all, or who

asserts it in a largely uninformative way, acts at his peril. See, e.g.,

FDIC v. Ramirez-Rivera, 869 F.2d 624, 626 (1st Cir. 1989).

In determining whether general, non-specific language in a

defendant’s answer, as was used here, suffices to preserve an

affirmative defense, an inquiring court must examine the totality

of the circumstances and make a practical, commonsense

assessment about whether Rule 8(c)’s core purpose — to act as a

safeguard against surprise and unfair prejudice — has been

vindicated. In this case, USF&G complied with the spirit, if not

the letter, of Rule 8(c). Well before the close of discovery — and

six months prior to the filing of the cross-motions for summary

judgment USF&G wrote to appellants and amplified its position,

asseverating that count 2 should be dismissed under Rule

12(b)(6) because ERISA preempted section 29. In the papers

accompanying the cross-motions for summary judgment, both

sides briefed the preemption issue. Thus, no ambush occurred.

(Cont'd)

forth affirmatively” various enumerated defenses, as well as “any other matter

constituting an avoidance or affirmative defense.” While preemption is not listed

specifically in the enumeration, it is a “matter constituting an avoidance,” and, thus,

ordinarily comes within the ambit of the rule. See, e.g., Keenan v. Dow Chem. Co.,

717 F. Supp. 799, 808-09 (M.D. Fla. 1989).

lla

Appendix A

Where, as here, a plaintiff clearly anticipates that an issue

will be litigated, and is not unfairly prejudiced when the

defendant actually raises it, a mere failure to plead the defense

more particularly will not constitute a waiver. See Conjugal

Partnership, 22 F.3d at 401; Lucas v. United States, 807 F.2d 414,

418 (Sth Cir. 1986).

Fourth: Appellants’ final attempt to resuscitate their claim

against USF&G is hardly worth mentioning. It involves the

resupinate assertion that the Supremacy Clause of the Federal

Constitution, U.S. Const. art. VI, cl. 2, bars preemption of section

29. This assertion is doubly flawed. For one thing, it is new to the

case, and accordingly, it is procedurally defaulted. See, e.g.,

McCoy, 950 F.2d at 22 (“It is hornbook !aw that theories not

raised squarely in the district court cannot be surfaced for the first

time on appeal.”). For another thing, it takes a topsy-turvy view

of preemption. After all, when the Supremacy Clause is

implicated, federal law trumps state law, not vice versa. See

Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142

(1963).

We need go no further. The district court astutely concluded

that past is prologue, and looked to McCoy. See Williams, 863 F.

Supp. at 48. We agree that McCoy controls. Hence, Mass. Gen. L.

ch. 149, § 29, as it applies to employee welfare benefit plans, is

preempted by ERISA § 514(a). The trustees’ suit, therefore, fails.

Affirmed.

12a

APPENDIX B — JUDGMENT AND OPINION OF THE

UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF MASSACHUSETTS DATED

SEPTEMBER 12, 1994

William WILLIAMS, et al.,

Plaintiffs,

v.

ASHLAND ENGINEERING CO., INC., et al.,

Defendants.

Civ. A. No. 92-11733-WJS.

United States District Court,

D. Massachusetts.

Sept. 12, 1994.

a ee

Robert O. Berger, III, Boston, MA, for plaintiffs.

Robert E. Riley, Edward F. Vena, Michael S. Levitz, Vena,

Truelove, Riley & Domestico, Boston, MA, for defendants.

MEMORANDUM AND ORDER

ON CROSS MOTIONS FOR

SUMMARY JUDGMENT

SKINNER, Senior District Judge.

The plaintiffs are trustees of the International Union of

13a

Appendix B

Operating Engineers Local 4 Health and Welfare Fund, an

employee benefit plan governed by the Employee Retirement

Income Security Act (ERISA), 29 U.S.C. §§ 1001 et seq. Local 4

members performed heavy machinery work for defendants

Ashland Engineering Company, Inc., C & B Construction

Company, Inc., and Ashanti/Ashland (collectively, “Ashland”),

the subcontractors for a Massport construction project. Ashland

abandoned performance and became delinquent in its employer

contributions to the Fund. Count I of the amended complaint is a

claim against Ashland for employer contributions under

§ 502(a)(3)(B)(ii) of ERISA, 29 U.S.C. § 1132(a)(3)(B)(ii).’

Ashland has not defended this action.

Defendant R.W. Granger and Sons, Inc. (“Granger”), the

general contractor for the Massport project, obtained a surety

bond from defendant United States Fidelity and Guaranty

Company (“USFG”) to secure payment for labor, materials,

employer contributions to “health and welfare funds,” and other

expenses of the Massport project, as required by Mass.Gen.L. c.

149 § 29.’ The payee of the bond is Massport. Count II states a

1. Section 1132(a)(3)(B) authorizes civil actions “by a participant,

beneficiary, or fiduciary (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 subchapter or the terms of the plan [.]”

2. Section 29 provides in part:

Officers or agents contracting on behalf of the

commonwealth . . . or other public instrumentality for

the construction. . . of public buildings. . . shall obtain

security by bond. . . for payment by the contractor and

subcontractors for labor performed or furnished and

materials used or employed therein.... [and] for

(Cont'd)

14a

Appendix B

§ 29 claim against USFG for payment under the bond. Count III

seeks to reach and apply the bond, allegedly an asset of Ashland

within Granger’s control, to Ashland’s debt.

The plaintiffs move for summary judgment on Counts II and

III. USFG and Granger move for summary judgment on the same

counts. At issue is whether ERISA preempts the cause of action

created by Mass.Gen.L. c. 149, § 29, where trustees of an ERISA

plan sue to collect the equivalent of unpaid employer

contributions.

I. ERISA preemption

The plaintiffs argue that USFG and Granger have waived the

defense of preemption by not raising it as an affirmative defense.

USFG’s answer asserted only that “[p]laintiffs have failed to state

a claim for which relief may be granted.”

Under Fed.R.Civ.P. 8(c), a party “pleading to a preceding

pleading ... [shall] set forth affirmatively” any matter

(Cont’d)

payment by such contractor and subcontractors of any

sums due trustees ... authorized to collect such

payments from the contractor or subcontractors, based

upon the labor performed or furnished as aforesaid, for

health and welfare plans, supplementary

unemployment benefit plans and other fringe benefits

which are payable in cash and provided for in

collective bargaining agreements between organized

labor and the contractor or subcontractors; provided,

that any such trustees ... shall .. . be entitled to the

benefit of the security only in an amount based upon

labor performed or furnished as aforesaid for a

maximum of two hundred and forty consecutive

calendar days.

15a

Appendix B

“constituting an avoidance or an affirmative defense.”

Preemption has been held to be an affirmative defense. See 5

Wright & Miller, Federal Practice and Procedure: Civil 2d

§ 1271, at 442 n. 51 (1990) (collecting cases). USFG should have

set forth preemption in its answer, or at least moved to amend its

answer before moving for summary judgment. See Kennan v.

Dow Chemical Co., 717 F.Supp. 799, 808-09 (M.D.Fla.1989).

The purpose of Rule 8(c), however, is to protect against

unfair surprise. The plaintiffs do not claim that they have been

prejudiced in any way (such as by failure to take discovery on the

issues material to preemption). Counsel for USFG and Granger

sent the plaintiffs a written analysis of the preemption defense

nearly six months before moving for summary judgment. See

Second Aff. of USFG Counsel, Ex. A. Rather than “dispos[e] of

substantial legal questions on mere technicalities of pleading

rules,” I will consider the preemption defense. Jn re Air Crash

Disaster at Stapleton Int’l Airport, 721 F.Supp. 1185, 1186

(D.Colo.1988).

In general, ERISA preempts all state laws that “relate to any

employee benefit plan.” 29 U.S.C. § 1144(a). Mass.Gen.L. c.

149, § 29 “relate[s] to” ERISA plans because it singles out such

plans for special treatment. Plan trustees are entitled to the

benefit of the bond, even though the plans themselves do not

furnish the labor. Cf. Chestnut-Adams Ltd. v. Bricklayers Trust,

415 Mass. 87, 612 N.E.2d 236, 240 (1993) (explaining similar

feature of Massachusetts’ mechanic’s lien statute). However, the

trustees’ entitlement is limited to “an amount based on labor

performed or furnished . . . for a maximum of two hundred and

forty consecutive calendar days.” This disparate treatment

(favorable as well as unfavorable) makes § 29 grist for the

preemption mill. See Mackey v. Lanier Collection Agency &

16a

Appendix B

Serv., 486 U.S. 825, 829, 108 S.Ct. 2182, 2185, 100 L.Ed.2d 836

(1988) (“we have virtually taken it for granted that state laws. . .

‘specifically designed to affect employee benefit plans’ are pre-

empted under [29 U.S.C. § 1144(a)]”); McCoy v. Massachusetts

Institute of Technology, 950 F.2d 13, 18-20 (1st Cir.1991), cert.

denied, ___U.S.__, 112 S.Ct. 1939, 118 L.Ed.2d 545 (1992).’

Moreover, Mass.Gen.L. c. 149, § 29 creates a new

mechanism for enforcing rights guaranteed by ERISA. Plan

fiduciaries may bring a civil action to “enforce any provisions of

[ERISA] or the terms of the plan.” 29 U.S.C. § 1132(a)(3)(B)(ii).

Because “ERISA’s civil enforcement remedies were meant to be

exclusive,” Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54, 107

S.Ct. 1549, 1556, 95 L.Ed.2d 39 (1987), the additional remedy

under § 29 is therefore preempted. See Ingersoll-Rand Co. v.

McClendon, 498 U.S. 133, 142, 111 S.Ct. 478, 484, 112 L.Ed.2d

474 (1991) (“[e]ven if there were no express pre-emption in this

case, the Texas cause of action would be pre-empted because it

conflicts directly with an ERISA cause of action”).‘

3. In Mackey, 486 U.S. at 838 n. 12, 108 S.Ct. at 2190 n. 12, the Supreme

Court “conclude[d] that any state law which singles out ERISA plans, by express

reference, for special treatment is preempted.” This “considered dictum” is binding

upon the courts of this circuit. McCoy, 950 F.2d at 19. It rebuts the plaintiffs’

assertion that the effect of § 29 on ERISA plans te “too tenuous, remote, or

peripheral. . . to warrant a finding that the law ‘relates to’ the plan.” Shaw v. Delta

Air Lines, Inc., 463 U.S. 85, 100 n. 21, 103 S.Ct. 2890, 2901 n. 21, 77 L.Ed.2d 409

(1983).

4. Itis immaterial that the § 29 action would normally be brought against the

surety rather than the delinquent employer. See McCoy, 950, F.2d at 18-20(ERISA

preempts Massachusetts’ mechanic’s lien law that allows plans to collect the

equivalent of unpaid employer contributions from the owner of the property

improved through the labor of plan participants). Like the lien law, § 29 substitutes

“anew (and perhaps deeper) pocket from which monies owed may be repaid.” Jd. at

(Cont'd)

17a

Appendix B

The plaintiffs argue that § 29 is saved from preemption

because it “regulate[s] insurance” within the meaning of ERISA’s

saving clause, 29 U.S.C. § 1144(b)(2)(A). Even if most surety

bonds are offered by insurance companies, that factor alone does

not trigger the saving clause. A surety bond is not an insurance

contract, see Mass.Gen.L. c. 175, § 107. Surety bonds are not

subject to Massachusetts’ insurance laws. Luso-Am. Credit

Union v. Cumis Ins. Soc., Inc., 616 F.Supp. 846, 848

(D.Mass.1985) (citing General Electric Co. v. Lexington

Contracting Corp., 363 Mass. 122, 292 N.E.2d 874 (1973)). “A

common-sense view of the word ‘regulates’ ” suggests that “in

order to regulate insurance, a law must not just have an impact on

the insurance industry, but must be specifically directed toward

that industry.” Pilot Life, 481 U.S. at 50, 107 S.Ct. at 1554 (citing

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 105

S.Ct. 2380, 85 L.Ed.2d 728 (1985)). “Under this common sense

view, G.L. c. 149, § 29 does not regulate insurance. . . .” Trustees

of the Iron Workers District Council v. Aetna Cas. and Surety Co.,

Suffolk Superior Court, C.A. No. 88-2298, slip op. at 8 (May 1,

1991) (USFG Counsel Aff. Ex. C).°

(Cont'd)

18. This substitution of defendants directly affects the plan’s enforcement of its

ERISA rights. By contrast, where a surety, pursuant to a settlement agreement,

guarantees an employer’ s contributions to a pension plan and exposes itself to suit

by the plan, “the involvement of a pension plan is a remote rather than central

consideration” in a dispute over the terms of the settlement. See Gould, Inc. v.

Pension Ben. Guar. Corp., 589 F.Supp. 164, 168 (S.D.N.Y.1984).

5. The Supreme Court has also drawn guidance from the three criteria

relevant to determining whether a practice falls under the “busir ss of insurance”

for purposes of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 etseg.:

[Flirst, whether the practice has the effect of

transferring or spreading the policyholder’s risk;

(Cont'd)

18a

Appendix B

In Peters v. Hartford Accident & Indemnity Co., 377 Mass.

863, 389 N.E.2d 63, 63-64 (1979), the Supreme Judicial Court

held that plan trustees may maintain a § 29 action against the

surety for a sub-sub-contractor’s unpaid employer contributions.

Even if Peters had expressly ruled against preemption, it must be

deemed overruled by subsequent Supreme Court decisions on the

scope of ERISA’s preemption and saving clauses. I hold that

ERISA preempts Mass.Gen.L. c. 149, § 29 as it concerns the

rights of ERISA plans. USFG’s motion for summary judgment on

Count II is accordingly allowed. Granger’s motion for summary

judgment is also allowed with respect to any direct claim against -

Granger pursuant to § 29.

II. The reach and apply claim

Count III of the amended complaint attempts to reach and

apply the bond toward Ashland’s unpaid employer contributions,

on the theory that the bond is an Ashland asset within Granger’s

control. Ashland has no right to payment for its own arrearage.°

(Cont'd)

second, whether the practice is an integral part of the

policy relationship between the insurer and the

insured; and third, whether the practice is limited to

entities within the insurance industry. Union Life Ins.

Co. v. Pireno, 458 U.S. 119, 129 [102 S.Ct. 3002,

3008-09, 73 L.Ed.2d 647] (1982) (emphasis in

original).

Metropolitan Life Ins. Co., 471 U.S. at 743, 105 S.Ct. at 2391. It is unnecessary to

rehearse the McCarran-Ferguson criteria to reach a foreordained conclusion.

Section 29 is plainly not limited to entities within the insurance industry, and indeed

does not concern an insurance “policy relationship” at all.

6. I can make no sense of the plaintiffs’ claim that “[t}he Employers

(Cont'd)

19a

Appendix B

Granger bound itself to pay Massport the amount stated in the

bond, on condition that its obligation to Massport would be “null

and void” if it “pay(s] for all labor performed or furnished and for

all materials used or employed” in the Massport contract.

Chelauski Aff. Ex. A. While Mass.Gen.L. c. 149, § 29 gives

claimants other thn Massport a right to payment under the bond,

that statute is preempted as applied to the plaintiffs.

The plaintiffs have submitted no evidence to show that

Granger has any assets of Ashland that can be applied to

Ashland’s debts. See Evans v. Multicon Constr, Corp., 30

Mass.App. 728, 574 N.E.2d 395, 401 (1991) (burden on party

seeking to reach assets to “point to specific property” of debtor in

possession of a third party). Granger’s motion for summary

judgment on Count III is accordingly allowed.

Conclusion

The plaintiffs’ motion for summary judgment on Counts II

and III is denied. USFG’s cross motion for summary judgment on

Counts II and Granger’s cross motion for summary judgment on

Count III are allowed. There being no just reason for delay,

Fed.R.Civ.P. 54(b), the clerk shall enter final judgment for USFG

and Granger.

(Cont'd)

[Ashland] are entitled to obtain from Granger the amounts the Employers own

plaintiffs, on the basis of this bond.” Pl. Reply Mem. at 6.

20a

APPENDIX C — ORDER DENYING PETITION FOR

RECONSIDERATION ENTERED FEBRUARY 21, 1995

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 94-2046

WILLIAM WILLIAMS, ETAL.,

Plaintiffs, Appellants,

v.

ASHLAND ENGINEERING CO., INC., ETAL.,

Defendants, Appellees.

ORDER OF THE COURT

Before:

Selya, Bouldin & Stahl, Circuit Judges.

Entered: February 21, 1995

Upon consideration of appellant’s ‘Petition For

Reconsideration Pursuant to F.R.A.P. Rule 40”,

It is ordered that the petition be denied.

By The Court

s/ FRANCIS P. SCIGLIANO

FRANCIS P. SCIGLIANO, Clerk

Messrs. Berger, III, Levitz, Riley, Vena, & Carver

2la

APPENDIX D — ORDER OF THE FIRST CIRCUIT

COURT OF APPEALS DENYING THE PETITION FOR

REHEARING ENTERED FEBRUARY 15, 1995

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 94-2046

WILLIAM WILLIAMS, ETAL.,

Plaintiffs, Appellants,

Vv.

ASHLAND ENGINEERING CO., INC., ETAL.,

Defendants, Appellees.

BEFORE

Torruella, Chief Judge.

Selya, Cyr, Boudin & Stahl, Circuit Judges.

ORDER OF THE COURT

Entered: February 15, 1995

The panel of judges that rendered the decision in this case

having voted to deny the petition for rehearing and the suggestion

for the holding of a rehearing en banc having been carefully

considered by the judges of the Court in regular active service and

a majority of said judges not having voted to order that the appeal

be heard or reheard by the Court en banc,

It is ordered that the petition for rehearing and the suggestion

for rehearing en banc be denied.

22a

Appendix D

By The Court

s/ FRANCIS P. SCIGLIANO

FRANCIS P. SCIGLIANO, Clerk

Messrs. Berger, III, Levitz, Riley, Vena, & Carver