# Opposition Brief — Murphy v. Diversified Products Corp.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1995
- **Citation:** 516 U.S. 986

## Text

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
Pn BOOUND 6566s kecdstecedidaleis tn. 11

> >. ~ ~~ >
ubalhaixcinee Saih-athints

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_2084%3A2. Public record. Not legal advice.