Opinion ID: 3010629
Heading Depth: 2
Heading Rank: 1

Heading: The LEEA Plan

Text: The statutory provisions that determine whether a multiemployer plan is governed by ERISA define an employee welfare benefit plan as: any plan, fund, or program which was . . . established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise . . . medical, surgical, or hospital care benefits. . . . 29 U.S.C. S 1002(1). An employer includes any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity. Id. S 1002(5). The question we must resolve, then, is whether the LEEA Plan was established or maintained by a group of employers acting indirectly in the interest of  its member employers in relation to the Plan. 10 Congressional commentary, Department of Labor (DOL) advisory opinions, and case law from other circuits applying ERISA to multi-employer plans have interpreted the statute to preclude ERISA coverage of plans established for entrepreneurial purposes. See, e.g., H.R. Rep. No. 1785, 94th Cong., 2d Sess. 48 (1977) ([P]lans . . . established and maintained by entrepreneurs for the purpose of marketing insurance products or services to others .. . are not established or maintained by the appropriate parties to confer ERISA jurisdiction, nor is the purpose for their establishment or maintenance appropriate to meet the jurisdictional prerequisites of the Act.);4 DOL Op. No. 817A, 1981 WL 17728, at  (E.R.I.S.A. Jan. 12, 1981) (stating that it is the Department's position that an organization that functions as a vehicle for insurance entrepreneurs to market insurance products or services, not as a bona fide program to provide benefits to employees, is not an employee benefit plan within the meaning of ERISA); MDPhysicians & Assoc., Inc. v. State Bd. of Ins., 957 F.2d 178, 185 (5th Cir. 1992) (holding that multi-employer plan sponsored by a physician's association was not an EWBP because association did not act indirectly in the interest of members; rather, it was an entrepreneurial venture that acted for itself ). Giving effect to the intention to exclude entrepreneurial ventures, the cases and advisory opinions have imposed two broad requirements for a multi-employer plan to constitute an EWBP. First, the group of employers that establishes and maintains the plan must be a bona fide association of employers tied by a common economic or representation interest, unrelated to the provision of benefits. Wisconsin Educ. Ass'n Trust v. Iowa State Bd., 804 F.2d 1059, 1063 (8th Cir. 1986); see also Moideen v. Gillespie, 55 F.3d 1478, 1481 (9th Cir. 1995); MDPhysicians, 957 F.2d at 185-86; Credit Managers Ass'n _________________________________________________________________ 4. This report has been described as  `virtually conclusive' as to legislative intent. MDPhysicians, 957 F.2d at 184; Hamberlin v. VIP Ins. Trust, 434 F. Supp. 1196, 1199 (D. Ariz. 1977); cf. Sioux Tribe v. United States, 316 U.S. 317, 329 (1942) (describing committee report made within five years of its passage as virtually conclusive as to the significance of th[e] Act discussed therein). 11 v. Kennesaw Life & Accident Ins. Co., 809 F.2d 617, 625 (9th Cir. 1987). Second, the employer-members of the organization that sponsors the plan must exercise control, either directly or indirectly, both in form and in substance, over the plan. See DOL Op. No. 96-25A, 1996 WL 634362, at -3 (E.R.I.S.A. Oct. 31, 1996) ([I]t is the Department's view that the employers that participate in a benefit program must, either directly or indirectly, exercise control over the program, both in form and substance, to act as a bona fide employer group or association with respect to the program.). The district court stated that both of the above factors must be considered in determining whether an organization is acting in the interests of an employer. We agree. The commonality of interest requirement is well-established in the case law, and the control factor has been consistently advanced as a requirement in DOL advisory letters since the early 1980s. See, e.g., DOL Op. No. 83-48A, 1983 WL 22533, at  (E.R.I.S.A. Sep. 14, 1983). In addition to the fact that [t]he Department of Labor's construction of ERISA is entitled to a substantial measure of deference, International Ass'n of Entrepreneurs of Am. Benefit Trust v. Foster, 883 F. Supp. 1050, 1061 (E.D. Va. 1995), the control requirement is a reasonable means of ensuring that the administrators of multi-employer welfare benefit plans in fact act in the interest of  their employer members. Therefore, we conclude that to qualify as an employer for ERISA purposes, an employer group or association must satisfy both the commonality of interest and control requirements. The district court found that the LEEA Plan satisfied neither of these requirements. It found that control was lacking because the employer members of the Plan's Board of Directors were outnumbered by HBKW principals with ex officio Board membership. Hence, the HBKW principals had the power to control the Board, and thus the power to control the Plan. Even though the ex-officio members never voted at meetings, the district court assume[d] they would have exercised that power had the decisions of the board been contrary to their wishes. D. Ct. Op. (May 6, 1994) at 7. The court also found commonality of interest to be 12 lacking because there was no nexus among the individuals benefitted by the Plan and the entity providing those benefits, other than the Plan itself since LEEA was comprised of disparate and unaffiliated businesses who had no relationship prior to the inception of the Plan. Id. at 8. We find that the district court erred on the control issue but decided the common interests issue correctly. On summary judgment, it was inappropriate for the court to base its conclusion that the HBKW principals controlled the Board on an assumption that they would vote at Board meetings if they so desired. Moreover, viewed in the light most favorable to Western World, the non-moving party, there was evidence in the record to suggest that the LEEA employer members did indirectly control the administration of the Plan through their representation on the Board. For example, the minutes of the Board meetings indicate that the employer members of the Board discussed and voted on many aspects of the day-to-day administration of the Plan, including amendments to the LEEA Plan and rate adjustments, whereas the ex-officio members were only considered guests at those meetings. See, e.g., Minutes of 4/25/83 Meeting, at A124. Hence, the court erred in concluding that the employer-members lacked control over the Plan as a matter of law. Nonetheless, Western World has not established the requisite commonality of interest to survive summary judgment. Courts considering the issue have found that a sufficient bond exists between employers engaged in the same line of business in the same geographical area, see, e.g., Steen v. John Hancock Mutual Life Ins. Co., 106 F.3d 904, 916 (9th Cir. 1997), but they have consistently rejected the contention that heterogenous businesses that share nothing more than a common size and a high regard for the entrepreneurial spirit enjoy such a bond, see, e.g., Moideen, 55 F.3d at 1481 (no commonality of interest where membership limited to employers with fewer than 500 employees); International Assoc. of Entrepreneurs, 883 F. Supp. at 1058-59 (no commonality of interest where membership limited to employers sharing adherence to the principles of entrepreneurial spirit and free enterprise). 13 The LEEA Plan bears greater resemblance to the latter types of organizations than the former. LEEA membership included such diverse groups as tool and die makers, an extended health care facility, a manufacturer of airplane engine parts, the operator of the local Holiday Inns, local law firms, a manufacturer of office partitions, a local realtor group, a manufacturer of knives, a beer distributor, an automobile dealer, and several social clubs. In short, the only common trait that LEEA employermembers possessed was that they employed fewer than 225 employees. However, common size is not a bona fide organizational relationship. See Smith, 1997 WL 297096 at ; Moideen, 55 F.3d at 1481. Accordingly, LEEA was not a bona fide employer organization that could establish and maintain an EWBP within the meaning of ERISA.5 _________________________________________________________________ 5. This conclusion is buttressed by consideration of the factors that the DOL has suggested are relevant to the factual determination of whether a group of employers participating in a multi-employer plan is a bona fide employer association within the meaning of S 1002(5). They include: how members are solicited; who is entitled to participate and who actually participates in the association; the process by which the association was formed, the purposes for which it was formed, and what, if any, were the preexisting relationships of its members; the powers, rights, and privileges of employer members that exist by reason of their status as employers; and who actually controls and directs the activities and operations of the benefit program. DOL Op. No. 96-25A, 1996 WL 634362, at . Consideration of the first three factors is particularly instructive in this case. First, members of LEEA were solicited by salespeople working for HBKW who attempted to sell both participation in the LEEA Plan and other HBKW insurance products. See Karle Dep. of 5/22/86, at A723, 729. Second, the restrictions placed on eligibility membership were few. Membership in LEEA was originally limited to employers with fewer than 150 employees who did business in Northwestern Pennsylvania. However, membership was subsequently extended to employers with up to 225 employees and to those who did business in Northeastern Ohio. Additionally, the bylaws allowed the admission ofassociate members who did not satisfy the membership requirements. Third, there was no preexisting relationship between the employer members of LEEA, and solicitation of new members was based not on appeals to the shared interests of the organization, but on the sale by HBKW employees of participation in the Plan. Moreover, the organization was formed by a commercial organization that hoped to make a profit through the operation of the Plan. Id. at A728. 14 Therefore, the district court's entry of summary judgment with respect to the LEEA Plan was proper.