Opposition Brief — Murphy v. Diversified Products Corp.

SiLED

= OCT 20 1996

OFFICE OF THE CLERK |

No. 95-87 --c——eemmaaas

In The

Supreme Court of the United States

—~-

October Term, 1995

y

J. MICHAEL MURPHY,

Petitioner,

vs.

DIVERSIFIED PRODUCTS CORPORATION, INC. and

STEPHEN J. O’BRIEN,

Respondents.

On Petition for Writ of Certiorari to the United States

Court of Appeals for the Eleventh Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

WILLIAM A. CLINEBURG, JR.

Counsel of Record

KING & SPALDING

Attorneys for Respondents

191 Peachtree Street

Atlanta, Georgia 30303-1763

(404) 572-4600

7623

we (00) 3 APPEAL * (800) 5 APPEAL + (800) BRIEF 21

PR erioes, inc.

Se aa lL

i

QUESTIONS PRESENTED FOR REVIEW

I. Whether this Court should issue a writ of certiorari to

review issues that were neither raised nor ruled upon in the

Eleventh Circuit?

II. Whether ERISA preempts a state law misrepresentation

claim that relates to a specific benefit of an ERISA plan even

though the benefit itself may not constitute a plan under ERISA if

administered separately?

III. Whether there is aconflict among the circuits on whether

ERISA preempts Petitioner’s state law claim that his employer

defrauded him into accepting one ERISA plan rather than

another?

ii

PARTIES TO PROCEEDINGS BELOW

The Parties to the proceedings below are set forth in the

caption of this case.

The following are parent companies and nonwholly owned

subsidiaries:

Tube Mill, Inc. (formerly Diversified Products Corp.)

Westinghouse Electric Corp. (as successor by merger to

Westinghouse Credit Corp.) - Owner of Tube Mill, Inc.

iii

TABLE OF CONTENTS

Page

Questions Presented forReview ...........+++++++05 i

Parties to the Proceedings Below ..........-+-++++++: ii

Table ofContemts .......cccccccccccccescccccccens iii

Table of Citations .......cccccsccccccescccccsccces iii

Opinions Below .........-.eeeceeeeeeeeeeeeeceees 1

Statement of Jurisdiction ...........---eeeeeeeeeees 1

Statutory Provisions Involved ..........-+++++eeeee 1

Counterstatement of the Case ..........----eeeeeeees 1

Reasons for Denyingthe Writ ..........--+eeeeeeees 4

CE cc diccebuvdectercccenvccccssccccssecs 16

TABLE OF CITATIONS

Cases Cited:

Boise Cascade Corp. v. Peterson, 939 F.2d 632 (8th Cir.

1991), cert. denied, 505 U.S. 1213(1992) .......... 9

Cefalu v. B.F. Goodrich Co., 871 F.2d 1290 (Sth Cir. 1989)

DEL UEs Sada EMME DURAK CRAVE CO CEO Oe eee Bereeere 13

iv

Contents

Fontenot v. NL Indus., 953 F.2d 960 (Sth Cir. | 9,10

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987) ..5,7,8,9,

Fugarino v. Hartford Life & Accident Ins. Co., 969 F.2d

178 (6th Cir. 1992), cert. denied, 113 S. Ct. 1401 (1993)

ee idee Lik ee TT Tee ee nts ores 15

Greany v. Western Farm Bureau Life Ins. Co., 973 F.2d

NE IN isto ein nt's ike beabn ok aetavicas., 8,9

Harris v. Provident Life & Accident Ins. Co., 26 F.3d 930

WS WT Windies eo cuvaccbceccid 3. 14,15

Howard v. Gleason Corp., 901 F.2d 1154 (2d Cir. 1990) .. 9

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

TTT TEC OT Te Sears: 6, 7, 10, 11, 12, 13, 14, 15

James v. Fleet/Norstar Financial Group, 992 F.2d 463 (2d

DE br ktevdukeladensiuyde pur. gia fk 10

Kulinski v. Medtronic Bio-Medicus, Inc., 21 F.3d 254 (8th

WE ehikasimideduceleudverecce docu ions 9

Lebron v. National R.R. Passenger Corp., 115 S. Ct. 961

SOME eth Gb eas EN ed er ae 5

Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d

MI III 5-6 nik diccakceeicacactce ccc bce. 15

Vv

Contents

Page

Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987) .. 15

New York State Conference of Blue Cross & Blue Shield

Plans v. Travelers Ins. Co., 115 S. Ct. 1671 (1995) .... 14

Office of Personnel Management v. Richmond, 496 US.

lt errr rr rrr rrr rr rrr? tir) frre 5

Pohl v. National Benefits Consultants, Inc., 956 F.2d 126

(Tth Cir. 1992) .......ccccccccccccccccccceveces 13

Sanson vy. General Motors Corp., 966 F.2d 618 (11th Cir.

1993), cert. denied, 113 S. Ct. 1578 (1993) .......... 6

Shaw v. Delta Airlines, Inc.,463 U.S. 85 (1983) ........ 8

Sherrod v. GMC, 33 F.3d 636 (6th Cir. 1994) ........... 9

1 Smith v. Dunham-Bush, Inc., 959 F.2d 6 (2d Cir. 1992) ... 13

: United States v. Williams, 504 U.S.36(1992) .........- 5

| Vartanian v. Monsanto Co., 14F.3d697 (1stCir.1994) .. 13

;

Weaver v. Employers Underwriters, Inc., 13 F.3d 172 (Sth

‘ Cir. 1994), cert. denied, 114S.Ct.2137 (1994) ...... 15, 16

| Yee v. City of Escondido, 503 U.S. 519 (1992) .......--- 5

|

Vi

Contents

Page

Statutes Cited:

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FIV BG SIM) oo ccccccccccccccecccecece., 11, 12, 14, 16

29 U.S.C. § 1003(b)(3) ... 0... cee cece cece cence, 8

SPE EP si ible che eee 16

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1

OPINIONS BELOW

The opinion of the United States Court of Appeals for the

Eleventh Circuit is unreported and is set forth in the Appendix to

the petition at pages 1a to 2a. The opinion of the United States

District Court for the Middle District of Alabama is unreported

and is set forth in the Appendix to the petition at pages 3a to 23a.

STATEMENT OF JURISDICTION

This Court has jurisdiction of the petition pursuant to 28

U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

The pertinent provisions of ERISA involved in this case are

set forth accurately in the petition at 2.

COUNTERSTATEMENT OF THE CASE

Petitioner originally brought this action against

Respondents, his former employer, Diversified Products

(“Diversified”), and its President, Steve O’Brien (“O’Brien”), to

gain the benefits of a special employee benefit plan that he had

been offered while an employee but never accepted. Petitioner

alleges that he retired and accepted another employee benefit

plan only because O’Brien misrepresented to him that the first

plan was invalid and unenforceable.

In January 1992, Diversified’s Board of Directors authorized

Diversified to enter into Employment Agreements with O’Brien

and each of Diversified’s four vice-presidents, including

Petitioner. Each Employment Agreement included a number of

benefit provisions, including Paragraph 9(c), which provided

severance benefits in the event Diversified terminated the

2

employee for “any reasons other than death, disability or Cause,”

and Paragraph 9(d), which provided a “golden parachute” if an

employee was terminated following a sale of Diversified. (See

App. 29a-30a.)

When Diversified offered the Employment Agreements to

each vice-president in February 1992, Petitioner was the only one

who did not accept, requesting instead an opportunity to meet

with O’Brien to discuss questions he had. Although they did meet

several times throughout the year, Petitioner never accepted or

signed the Employment Agreement.

O’Brien, who had only been president since September

1991, grew increasingly dissatisfied with Petitioner’s

performance. In May 1992, Diversified conducted an employee

satisfaction poil that ranked Petitioner’s department near the

bottom in many critical areas. Prior to Petitioner’s scheduled

performance review in August, O’Brien warned Petitioner by

memo that they needed to assess “whether or not you are the best

person to lead the [Human Resources] function or whether it’s

best for you to make a career move now or in the near future.”

(App. 15a.) Following his evaluation, Petitioner requested by

memo that “[i}f my professional relationship with you and DP is

to be concluded, then I would expect both of us to also handle

such with the highest degree of professionalism, mutual respect

and integrity for you and DP, as well as me and my family.” (App.

16a.) Shortly thereafter, O’ Brien decided to terminate Petitioner.

Although Petitioner was not eligible for Diversified’s

retirement benefits, Diversified agreed to allow Petitioner to

retire, and O’Brien and Petitioner began meeting to negotiate a

reasonable retirement package. After Diversified agreed to most

of Petitioner’s demands, the parties executed the Retirement

Agreement, which included provisions for continuing

Petitioner’s salary for one year and extending group health

3

benefits and life insurance. Petitioner stopped working in

October 1992 and retired effective December 31, 1992.

Diversified continues to administer and provide benefits to

Petitioner under the Retirement Agreement.

In May 1993, following the announcement of Diversified’s

sale, Petitioner filed this action in Alabama state court to enforce

the Employment Agreement he concedes neither party ever

signed. His complaint included four counts of fraud and

misrepresentation. Petitioner claims that when he and O’Brien

met to negotiate the terms of his Retirement Agreement in

September 1992, Petitioner asked about the Employment

Agreement and was told the Employment Agreements were not

enforceable, Diversified would not honor the Employment

Agreements, and Diversified was not contemplating the sale of

the company. Petitioner also alleges that had O’Brien not misled

him, he would not have retired or accepted the Retirement

Agreement. (O’Brien denies having made these statements.)

According to Petitioner he discovered O’Brien’s alleged

misrepresentations after his retirement, when a former member

of Diversified’s Board of Directors told him, in March 1993, that

the Employment Agreements were enforceable, Diversified

intended to honor them, and Diversified had been negotiating a

sale of the company while Petitioner was arranging for his

retirement. (O’Brien asserts that he first learned about the

possibility of a sale in early 1993.) Diversified was sold in June

1993.

When Respondents removed this action to federal court,

Petitioner moved to remand. Following a hearing, the district

court denied Petitioner’s motion, finding that both the

Employment Agreement and Retirement Agreement were

employee benefit plans and ERISA preempted Petitioner’s state

law misrepresentation claims because the claims related to the

4

two plans. (Order, August 6, 1993, p. 5; see App. 8a.) After the

parties completed discovery, Respondents moved for summary

judgment. Following another hearing, the district court granted

Respondents’ motion, finding that Petitioner was not a

participant or beneficiary of the Employment Agreement because

he never signed it, he was receiving all his benefits under the

Retirement Agreement, and ERISA preempted his state law

misrepresentation claims. (App. 13a-14a, 17a.) The district court

also found that Petitioner’s decision to retire could not have been

affected by the alleged misrepresentations because he “would

have been terminated had he not retired.” (App. 15a-16a.)

On appeal to the Eleventh Circuit, Petitioner did not

challenge the district court’s findings that the Employment

Agreement and Retirement Agreement were employee benefit

plans and that Diversified would have terminated Petitioner had

he not retired. Instead, he argued that ERISA does not preempt

state law claims relating to employee benefit plans in which the

employer pays benefits directly and in which only a small number

of employees participate. In a brief per curiam decision, the

Eleventh Circuit affirmed, finding Petitioner’s claims related

directly to the Employment and Retirement Agreements and were

therefore preempted, and Petitioner was not a participant or

beneficiary of the Employment Agreement because he never

signed it. (App. 2a.)

REASONS FOR _—— THE WRIT

Petitioner argued below that the Employment Agreement is

not an employee benefit plan and ERISA should not preempt

claims relating to certain kinds of employee benefit plans.

Petitioner now abandons these arguments and argues for the first

time that his claims seeking the benefit of the golden parachute do

not relate to an ERISA plan because they only relate to Paragraph

9(d) of the Employment Agreement and ERISA should not

preempt claims brought by nonparticipants.

5

This Court should not grant a writ of certiorari because it has

been the practice of this Court not to do so when a petitioner

raises arguments for the first time in a petition to this Court.

Furthermore, the challenged ruling that ERISA preempts state

law claims even though they relate to only one benefit of an

employee benefit plan is consistent with this Court’s decision in

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987), and the

decisions of other Courts of Appeals. Likewise, there is no

conflict among the Courts of Appeals on the principle that ERISA

preempts state law claims that relate to an employee benefit plan

whether or not the plaintiff is a participant in the plan.

L

This Court’s traditional rule has been to deny certiorari when

“the question presented was not pressed or passed upon below.”

United States v. Williams, 504 U.S. 36, 41 (1992) (internal

quotations omitted). Although it is within this Court’s power and

discretion to hear and decide questions of law that were not raised

on appeal or addressed by the lower courts, see Lebron v.

National R.R. Passenger Corp., 115S. Ct. 961, 965 (1995); Yee v.

City of Escondido, 503 U.S. 519, 533 (1992), it has been the

practice of this Court not to grant a petition for a writ of certiorari

under such circumstances. Office of Personnel Management v.

Richmond, 496 U.S. 414, 440-41 (1990) (Marshall, J.,

dissenting).

This case is aclear example of one in which the court should

deny certiorari because a litigant has failed to raise or preserve

arguments in the courts below. As the only grounds for his

petition, Petitioner raises two arguments that he neither presented

in the district court nor raised in the Court of Appeals.

In his complaint, Petitioner alleged that he had been

defrauded out of accepting the Employment Agreement. In

6

opposing removal, Petitioner unsuccessfully argued that the

Employment Agreement was not an employee benefit plan

covered by ERISA. At the completion of discovery, Respondents

moved for summary judgment relying primarily on Sanson v.

General Motors Corp., 966 F.2d 618 (11th Cir. 1993), cert.

denied, 113 S. Ct. 1578 (1993), a decision in which the Eleventh

Circuit applied Ingersoll-Rand Co. v. McClendon, 498 U.S. 133

(1990), and found preemption on nearly identical facts. In his

opposition, Petitioner did not dispute that his claims related to the

Employment Agreement or that the Employment Agreement was

an ERISA plan. The only arguments Petitioner made were to

attempt to distinguish Sanson and complain that he would be left

without a remedy. The district court granted summary judgment,

reiterating its conclusion that Petitioner’s “fraud claims relate to

an ERISA-governed employee benefit plan and therefore are

preempted.” (App. 8a.)

On appeal to the Eleventh Circuit, Petitioner again did not

challenge the district court’s conclusion that his claims related to

an ERISA plan. Nor did Petitioner object to the district court’s

finding that he would have been terminated if he had not retired.

Other than raising nonmaterial questions of fact, Petitioner’s only

argument was that Sanson did not or should not apply to an

employee benefit plan like the Employment Agreement.

The one page decision of the Eleventh Circuit is a stark

testament to Petitioner’s failure to raise in that court any of the

issues he presses in this petition. The Eleventh Circuit noted at

the outset that “the district court concluded, and the appellant

properly concedes, the Employment Agreement and Retirement

Agreement’ at issue herein are covered by ERISA.” (App. 2a.)

Based on this concession, the Court of Appeals summarily

1. Petitioner concedes that the Retirement Agreement is an employee

benefit plan. Petitioner's brief at 9 n.5.

7

affirmed, concluding that ERISA preempted Petitioner’s claims

because they were directly related to two employee benefit plans.

(Id.)

Petitioner now argues, first, that his claims are not to enforce

the Employment Agreement, but to enforce only Paragraph 9(d),

which, he argues, is not by itself an employee benefit plan’; and,

second, that McClendon should not bar state law claims brought

by nonparticipants of a plan. This Court should deny the petition

because neither argument was advocated, considered, or decided

below. Nevertheless, as discussed further below, the decisions of

the district court and the Eleventh Circuit are also consistent with

decisions of this Court and other Courts of Appeals.

Il.

Petitioner’s new argument that ERISA does not preempt his

state law claims because they relate solely to Paragraph 9(d),

rather than to the Employment Agreement as a whole, reveals a

fundamental misunderstanding of the preemptive scope of

ERISA and the decision of this Court in Fort Halifax Packing Co.

v. Coyne, 482 U.S. 1 (1987). In Fort Halifax, this Court

distinguished between “employee benefits” and “employee

benefit plans”, and held that Congress intended that ERISA only

preempt state laws relating to the latter. Id. at 7-8. The case

involved a Maine statute that required employers to provide a

one-time lump sum severance payment in the event of a plant

closing. The Court recognized that Congress designed ERISA’s

preemption clause to protect employers from additional or

conflicting state regulation regarding the administration of a

plan. Id. at 9. The Court concluded that ERISA did not preempt

the statute because it “neither establishes, nor requires an

2. The district court disagreed, suggesting that Paragraph 9(d) might

also require an administrative scheme. (Order, August 6, 1993, pp. 4-5.)

employer to maintain, an employee benefit plan,” and because

the “requirement of a one-time, lump-sum payment triggered by a

single event requires no administrative scheme whatsoever.” Jd.

at 12.

The Court relied in part on an earlier decision, Shaw v. Delta

Airlines, Inc., 463 U.S. 85 (1983), which is perhaps even more

relevant to the facts in this case. In Shaw, the Court held that “only

disability programs administered separately from other benefit

plans fall within ERISA’s preemption exemption for plans

maintained ‘for the purpose of complying with ... disability

insurance laws.” Fort Halifax, 482 U.S. at 10 (quoting 29 U.S.C.

§ 1003(b)(3)) (emphasis added).

The rule that emerges from Fort Halifax and Shaw is that a

court may not “pierce the veil”, so to speak, and look within an

employee benefit plan to determine whether each provision of the

plan requires an administrative scheme. If an employer

establishes a “plan”, like each of Diversified’s five Employment

Agreements, ERISA insulates the plan from state regulation.

Here, whether Paragraph 9(d) requires administration is

irrelevant because, as the district court concluded, the remaining

provisions of the Employment Agreement necessarily require an

administrative scheme. Petitioner ignores the self-evident fact

that every regulation of a benefit is a regulation of the plan of

which the benefit is a part. Whether an individual benefit requires

administration is irrelevant if the plan requires administration.

Relying on Fort Halifax, Courts of Appeals have

consistently held that state laws are preempted if they relate to a

benefit that is part of a plan. In Greany v. Western Farm Bureau

Life Ins. Co., 973 F.2d 812 (9th Cir. 1992), plaintiff argued that

his state law claim to recover benefits under a special “conversion

policy” available to participants in his employer’s

comprehensive employee benefit plan were not preempted

9

because “the conversion policy and the facts surrounding its

processing are merely an employee benefit that is free from

ERISA’s broad reach.” Id. at 817. The Ninth Circuit disagreed:

“The opportunity to convert the group plan to an individual

policy is a benefit provided pursuant to the group plan. ... No

conversion benefits would be available unless the party seeking

the conversion policy was an eligible insured beneficiary of a

group plan.” Id. See also Boise Cascade Corp. v. Peterson, 939

F.2d 632 (8th Cir. 1991) (ERISA preempts state law that regulates

a term of apprenticeship programs that the state conceded were

employee benefit plans), cert. denied, 505 U.S. 1213 (1992);

Howard v. Gleason Corp., 901 F.2d 1154 (2d Cir. 1990) (ERISA

preempts state law claims that employer failed to notify plaintiff

of right to convert medical insurance because conversion right

was one benefit of welfare benefit plan).

Although Petitioner argues there is a split among the

Circuits, in fact each of the four decisions upon which he relies is

consistent with Fort Halifax and the decisions of the other Courts

of Appeals. In Kulinski v. Medtronic Bio-Medicus, Inc., 21 F.3d

254 (8th Cir. 1994), the Eighth Circuit held that ERISA did not

preempt a state law claim to enforce a “change-of-control-

termination agreement (“CCTA”)” or “golden parachute”

because “the CCTA was entirely self-contained” and its only

provision was for the severance payment. Id. at 255, 258. In

Sherrod v. GMC, 33 F.3d 636 (6th Cir. 1994), the Sixth Circuit

held that ERISA did not preempt a state law claim to recover

under a General Motors plan because the plan’s singular

provision was to pay a lump-sum benefit if an employee

voluntarily left GM and relinquished his seniority rights. Jd. at

638-39. In Fontenot v. NL Indus., 953 F.2d 960 (Sth Cir. 1992),

the Fifth Circuit held that ERISA did not preempt a state law

cause of action to enforce an employer’s Senior Executive

Severance Plan because the plan’s only provision was to provide

a one-time lump sum severance payment in the event an officer

10

was terminated within three years of a change of control. /d. at

962. Finally, in James v. Fleet/Norstar Financial Group, 992

F.2d 463 (2d Cir. 1993), the Second Circuit held that ERISA did

not preempt a state law claim to fulfil an employer’s promise to

give employees who remained through a consolidation a one-

time payment of sixty days wages. Id. at 463.

In each of these cases, the Court relied on the complete

absence of a plan in determining that ERISA did not preempt.

Each of these cases stands for the same proposition: although

ERISA preempts laws relating to plans and laws relating to

benefits that are provided as part of a plan, ERISA does not

preempt laws relating to a benefit that is not provided as part of a

plan and does not require an administrative scheme.

Petitioner’s attempt to avoid preemption by recharacterizing

his claim in this Court as one to enforce Paragraph 9(d) alone is

fruitless. Paragraph 9(d) is an integral part of the Employment

Agreement, which Petitioner concedes is an employee benefit

plan; any claim to enforce that provision necessarily relates to an

employee benefit plan.

Ill.

Notwithstanding Petitioner’s characterization, the Eleventh

Circuit’s decision that ERISA preempted his claims was a

straightforward application of the rule and reasoning of this

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

and of other Courts of Appeals. The exception that Petitioner

would have this Court adopt allowing state law claims related to

ERISA plans by nonparticipants and nonbeneficiaries would

undermine and frustrate Congressional intent that employee

benefit plans be insulated against state law regulation.

In McClendon, plaintiff alleged that his employer had

11

terminated him to prevent his benefits from vesting. The Texas

Supreme Court held that ERISA did not preempt plaintiff's

wrongful termination claim because he sought damages (lost

wages and compensation) that were unrelated to the plan. Jd. at

136. This Court reversed, finding that Congress had expressly

preempted common law causes of action when “the existence of a

pension plan is a critical factor in establishing liability” and when

“there simply is no cause of action if there is no plan.” Jd. at 139-

40.

The Court began with § 514(a) of ERISA, which expressly

preempts

any and all State laws insofar as they may

now or hereafter relate to any employee

benefit plan described in section 1003(a) of

this title and not exempt under section

1003(b) of this title.

Id. at 138 (quoting 29 U.S.C. § 1 144(a)).

Noting that § 514(a) is “conspicuous for its breadth,” and

that its “deliberately expansive” language was “designed to

‘establish pension plan regulation as exclusively a federal

concern,” the Court summarized its earlier decisions

concerning when a law relates to a plan:

“A law ‘relates to’ an employee benefit plan,

in the normal sense of the phrase, if it has a

connection with or reference to such a plan.”

Under this “broad common-sense meaning,”

a state law may “relate to” a benefit plan, and

thereby be pre-empted, even if the law is not

specifically designed to affect such plans, or

the effect is only indirect. Pre-emption is also

12

not precluded simply because a state law is

consistent with ERISA’s _ substantive

requirements.

Id. at 138-39 (citations omitted).

The Court had “no difficulty in concluding” that

McClendon’s cause of action “‘relates to’ an ERISA-covered

plan within the meaning of § 514(a), and is therefore pre-

empted.” Jd. at 140. Although McClendon argued that only the

plan’s existence mattered and not its details, the Court dismissed

this argument as “miss[ing] the point, which is that under the

Texas court’s analysis there simply is no cause of action if there is

no plan.” Id.

Petitioner’s cause of action for fraud is no less “related to” an

ERISA plan than was McClendon’s. Petitioner’s own complaint

recognizes that to prevail he must prove that an employee benefit

plan exists, he was eligible for the plan, he would have received

benefits under the plan, and Respondents made a material

misrepresentation about the existence and enforceability of the

plan.’

Petitioner cannot argue that his case is simply a cause of

action for fraud, just as McClendon could not argue that his was

simply a cause of action for wrongful discharge. In both cases,

whether plaintiff will recover necessarily turns on the existence

of an employee benefit plan. And, just as the Court’s decision in

McClendon did not eliminate all state law claims for wrongful

3. In fact, Petitioner’s claim for fraud is even more closely related to an

ERISA plan than was McClendon's in that to calculate damages, Petitioner

will have to reference a second ERISA plan, the Retirement Agreement, as

Petitioner's damages would necessarily have to be reduced by the value of

benefits he has already received under the Retirement Agreement.

13

discharge, the decision of the Eleventh Circuit below will not

eliminate all state law claims for fraud. The decisions simply

preempt causes of action that require, as an element of their case,

that plaintiff prove the existence of an ERISA plan.

A number of decisions demonstrate that the Courts of

Appeals are interpreting and applying McClendon consistently

with the decisions below in this case. In Smith v. Dunham-Bush,

Inc., 959 F.2d 6 (2d Cir. 1992), an employee claimed that he

accepted a transfer in reliance on his employer’s promise to

supplement his benefits under a new plan; the Second Circuit

held that ERISA preempted his state law claim for

misrepresentation. In Cefalu v. B.F. Goodrich Co., 871 F.2d 1290

(5th Cir. 1989), plaintiff claimed that he retired and purchased a

franchise in reliance on the employer’s promise that his

retirement benefits as a franchisee would be equivalent to those

he would have received had he stayed with the company; the Fifth

Circuit held that ERISA preempted plaintiff's state law

misrepresentation claims. In Pohl v. National Benefits

Consultants, Inc., 956 F.2d 126 (7th Cir. 1992), plaintiff claimed

that he incurred additional personal expenses in reliance on his

employer’s assurance that he was covered under the employer’s

medical plan; the Seventh Circuit held that ERISA preempted

plaintiff’s misrepresentation claim. See also Vartanian v.

Monsanto Co., 14 F.3d 697 (1st Cir. 1994) (ERISA preempts

employee’s fraud claim that he retired in reliance on employer’s

misrepresentation that no new retirement plan was being

considered; court did hold that employee was a “participant” of

the new plan and therefore had standing to bring a claim under

ERISA).

Alternatively, Petitioner argues McClendon should not

apply when the plaintiff is not a participant in the plan to which

the state law cause of action relates. However, nothing in ERISA

or the decisions of this Court suggest that ERISA preemption is

predicated upon the plaintiff’s status as a plan participant.

4

Rather, ERISA preemption is predicated on a Congressional goal

of administrative uniformity. A state law that allows a

nonparticipant or non-beneficiary to bring a cause of action that

is related to an employee benefit plan is just as likely to disrupt

plan administration as is a cause of action by a participant or

beneficiary.

Since McClendon, this Court has reiterated that the purpose

of § 514(a) is

“to ensure that plans and plan sponsors would

be subject to a uniform body of benefits law;

the goal was to minimize the administrative

and financial burden of complying with

conflicting directives among States or

between States and the Federal Government

. .» [and to prevent] the potential for conflict

in substantive law . . . requiring the tailoring

of plans and employer conduct to the

peculiarities of the law of each jurisdiction.”

New York State Conference of Blue Cross & Blue Shield Plans v.

Travelers Ins. Co., 115 S. Ct. 1671, 1677 (1995) (quoting

McClendon, 498 U.S. at 142 (citation omitted)). This passage

allows no room for distinguishing between claims brought by

participants and claims brought by non-participants. See also

Blue Cross & Blue Shield Plans, 115 S. Ct. at 1677-78 (“The basic

thrust of the pre-emption clause. . . was to avoid a multiplicity of

regulations in order to permit the nationally uniform

administration of employee benefit plans.”)

Petitioner contends that other Circuits have recognized a

distinction in preemption cases between participants and

nonparticipants, when in fact each decision is distinguishable. In

Harris v. Provident Life & Accident Ins. Co., 26 F.3d 930 (9th Cir.

15

1993), plaintiff sued to recover medical benefits after learning

that, contrary to the employer's representation, he was not yet

eligible. Id. at 931. The Court never applied McClendon because

it found that subject matter jurisdiction was lacking. Because

plaintiff could not bring a claim under ERISA as a participant or

beneficiary, and because “‘ERISA pre-emption, without more,

does not convert a state claim into an action arising under federal

law,’” the Court held that the complaint must be remanded for

lack of subject matter jurisdiction. Id. at 933-34 (quoting

Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 64 (1987)).

In Fugarino v. Hartford Life & Accident Ins. Co., 969 F.2d

178 (6th Cir. 1992), cert. denied, 113 S.Ct. 1401 (1993), plaintiff,

an employer, purchased a health insurance policy for himself, his

family, and some of his employees. He sued after the insurer

refused to reimburse him for medical costs incurred for one of his

children. Id. at 180-82. The Court held that although the

insurance plan was an ERISA plan vis a vis plaintiff’s employees,

as to plaintiff, the insurance policy was merely an insurance

contract between an employer and the insurance company and

therefore state law governed. Jd. at 186.

Finally, in Weaver v. Employers Underwriters, Inc., 13 F.3d

172 (Sth Cir. 1994), cert. denied, 114 S. Ct. 2137 (1994), the

employer obtained a medical insurance policy for his employees.

Although the employer referred to plaintiff as an employee and

intended that he be covered, plaintiff was legally a subcontractor.

When the insurance company learned that plaintiff was a

subcontractor and not an employee, it stopped making payments

for an injury. After the insurer settled, Plaintiff sued the employer

alleging a number of claims arising out of the settlement

agreement. Id. at 173-74. The Fifth Circuit inexplicably ignored

McClendon and relied on a test articulated in Memorial Hosp.

Sys. v. Northbrook Life Ins. Co., 904 F.2d 236 (5th Cir. 1990), a

decision that predated McClendon. The court held that plaintiff’s

16

claims were not preempted because the “claims by a

nonparticipant and nonbeneficiary to a plan do not affect the

relationship between the traditional ERISA entities.” Jd. at 177.

This decision is of doubtful validity.

This Court has consistently held that ERISA contains one of

the broadest preemption clauses of any piece of federal

legislation. Section 514(a) preempts any state law or state law

cause of action that could interfere with an employer’s

administration of an employee benefit plan. Nothing in this

Court’s decisions or in ERISA itself suggests that an exception

should be recognized for plaintiffs who are not participants in the

plan. Petitioner cannot argue that such claims would have any

less effect on plan administration.

Although Petitioner’s claim challenges the scope of ERISA’s

preemption clause, his real complaint lies with 29 U.S.C. § 1132,

ERISA’s civil enforcement provision. The answer to Petitioner’s

appeal is not to create a significant exception to ERISA’s

preemption clause, but to legislate a new remedy for persons in

Petitioner’s position. That is a job for the United States Congress.

CONCLUSION

For the foregoing reasons, Respondents urge that this Court

deny the Petition for Writ of Certiorari.

Respectfully submitted,

WILLIAM A. CLINEBURG, JR.

Counsel of Record

KING & SPALDING

Attorneys for Respondents

191 Peachtree Street

Atlanta, Georgia 30303-1763

(404) 572-4600