# Petition for Writ of Certiorari — Williams v. Ashland Engineering

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1995
- **Citation:** 516 U.S. 807

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_1692%3A1. Public record. Not legal advice.