Opinion ID: 774942
Heading Depth: 1
Heading Rank: 2

Heading: jurisdiction

Text: 17 Plaintiffs contend that the district court lacked subject matter jurisdiction at the time the case was removed and at the time of judgment; therefore, the denial of the motion to remand was error and the proceedings and judgment must be vacated. 4 The Bank, Norcal, and the ESOP contend that Plaintiffs' claims for constructive fraud, breach of fiduciary duty, and negligence in the state court complaint (at least with respect to the 44 Plaintiffs who are also ESOP participants) are subject to complete preemption under ERISA, providing the court with subject matter jurisdiction and a federal question to anchor removal of the entire action. 5 Questions of subject matter jurisdiction and removal are reviewed de novo. Toumajian, 135 F.3d at 652. The denial of a motion to remand a removed case by the district court is also reviewed de novo. ARCO Envtl. Remediation, L.L.C. v. Dep't of Health and Envtl. Quality, 213 F.3d 1108, 1111 (9th Cir. 2000). 18 Removal under 28 U.S.C. §§ 1441 requires that the complaint contain a claim within the original subject matter jurisdiction of the federal district court. Toumajian , 135 F.3d at 653. Thus, only if we can discern a federal question was removal proper. 19 Plaintiffs' complaint did not facially assert any federal claim; therefore, the original subject matter jurisdiction required to support removal exists only if ERISA completely preempted any of the state law claims. See Rutledge v. Seyfarth, Shaw, Fairweather, & Geraldson, 201 F.3d 1212, 1215 (9th Cir.), amended by 208 F.3d 1170 (9th Cir.), cert. denied, 531 U.S. 992 (2000). The doctrine of complete preemption has been described as an independent corollary to the wellpleaded complaint rule. Id. (quoting Harris v. Provident Life and Accident Ins. Co., 26 F.3d 930, 934 (9th Cir. 1994)). Complete preemption can be invoked only when two conditions are satisfied: (1) ERISA expressly preempts the state law cause of action under 29 U.S.C. §§ 1144(a) (i.e. conflict preemption) and (2) that cause of action is encompassed by the scope of the civil enforcement provision of ERISA, 29 U.S.C. §§ 1132(a) (i.e. displacement). Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 60 (1987); Rutledge, 201 F.3d at 1216. Neither of these conditions was satisfied in this case. 20 a. Conflict Preemption under 29 U.S.C. §§ 1144(a) 21 Section 1144(a) states, in relevant part, that provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . . The critical phrase relate to has been the source of much confusion as well as multiple and slightly differing analyses by this court. See, e.g., Rutledge, 201 F.3d at 1216-19 (surveying our approach to the relates to requirement but ultimately declining to develop a test describing the outer bounds of ERISA [conflict] preemption). We recognize that while this relate to language has been construed quite broadly in the past, the Supreme Court has narrowed the applicability of§§ 1144(a) in recent years ever since its decision in New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645 (1995). See also Toumajian, 135 F.3d at 654 n.3 (acknowledging that [r]ecently, the scope of this broad `relate to' preemption was markedly narrowed (quoting Travelers, 514 U.S. at 655)). 22 State law relates to an ERISA benefit plan if there is a connection with or reference to such a plan. Blue Cross v. Anesthesia Care Assocs. Med. Group, Inc., 187 F.3d 1045, 1052 (9th Cir. 1999) (quoting Cal. Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 324 (1997)). As we discussed in Rutledge, the reference to prong of the test is fairly precise and did not apply there -nor is it applicable here -because the state law in question did not act immediately and exclusively upon an ERISA plan nor is such a plan essential to the operation of the law. 201 F.3d at 1216 (quoting Dillingham, 519 U.S. at 325). Plaintiffs' allegedly preempted claims here were solely based on state law theories of constructive fraud, breach of fiduciary duty, and negligence, so the relevant state law certainly does not act immediately and exclusively on an ERISA plan, nor is such a plan essential to the operation of the law. In order to determine whether a state law has the forbidden connection, we look both to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood to survive, as well as to the nature and effect of the state law on ERISA plans. Egelhoff v. Egelhoff, 532 U.S. 141, 121 S. Ct. 1322, 1327 (2001) (internal quotation marks omitted). The only argument advanced for removal, and upon which the district court relied, is that the state law claims have the necessary connection with an ERISA plan because they encroach upon ERISA-regulated relationships. 6 23 We have previously recognized thata core factor leading to the conclusion that a state law claim is preempted is that the claim bears on an ERISA-regulated relationship. Rutledge, 201 F.3d at 1219. Under the rationale of a relationship test, we look to whether the state law encroaches on relationships regulated by ERISA, such as between plan and plan member, plan and employer, and plan and trustee. Blue Cross, 187 F.3d at 1053. Those regulated relationships that are purported to be encroached upon in this case are between: (i) plan and parties in interest, as defined in 29 U.S.C. §§ 1002(14); (ii) plan and participants; and (iii) plan and fiduciaries. We find none of these arguments persuasive. 24 With respect to the first relationship, the Bank, Norcal, and the ESOP each suggests that ERISA comprehensively governed the sale of stock and extension of credit between a plan and parties in interest, such as the employees of the plan sponsor; and that absent the express statutory exemptions provided by ERISA, any transaction constituting a lending of money or other extension of credit between the plan and a party in interest would have been a prohibited transaction. See 29 U.S.C. §§ 1106(a)(1)(B); see also id. §§ 1108(b)(3) (exempting loan when primarily for the benefit of participants and beneficiaries of the plan and at an interest rate which is not in excess of a reasonable rate) and §§ 1108(e) (exempting acquisition by a plan of qualifying employer securities if for adequate consideration andno commission is charged). Certainly that subset of Plaintiffs who were current Norcal employees would be parties in interest for the purposes of the prohibited transaction provision. See id. §§ 1002(14)(A). But the state law claims alleged in the initial complaint did not implicate the prohibited transaction provision, which serves ERISA's purposes by protecting a plan's participants and beneficiaries from a depletion of plan assets through shady, inside deals. Rutledge, 201 F.3d at 1222. Indeed, the claims do not remotely concern the objectives of ERISA. 25 Like all Plaintiffs, the employees were suing as note holders for state law fraud, breach of fiduciary duty, and negligence arising from a transaction that was expressly exempted from the prohibited transaction provision; their status as parties in interest is irrelevant. Unlike in Rutledge, where the preempted claims were premised on a relationship between a plan and a legal service provider in the very respects governed by ERISA's regulation of prohibited transactions, the state law claims here do not bear upon any ERISA-governed relationship between a plan and parties in interest. See id. (Because the allegation at issue in the state law claims . . . is precisely the sort of prohibited transaction governed by ERISA, we hold . . . that the claims are preempted.) By carefully crafting exceptions to the transactions prohibited under ERISA and the conditions for those exceptions, Congress presumably understood the scope of the state law that would otherwise survive to govern such transactions in all aspects unrelated to the objectives and administration of ERISA. In this way, the ESOP's relationship with Plaintiffs who were also Norcal employees was no different from its relationship with the rest of the Plaintiff note holders. Cf. Arizona State Carpenters, 125 F.3d at 724 (As a service provider offering nonfiduciary custodial services, Citibank's relationship with the Trust Funds was no different from that between Citibank and any of its customers.). Accordingly, we conclude that [i]n the circumstances of this case, the connection between the state common law principles and ERISA's regulation of employee benefit plans is simply too tenuous, remote or peripheral to trigger preemption.  Id. (internal quotation marks and citation omitted). 26 Nor, under similar reasoning, is a relationship between plan and participant encroached upon here. Those Plaintiffs who were also ESOP participants have an independent creditor relationship with the ESOP as a corporate entity based upon their status as former shareholders and current note holders under the Indenture. See Gen. Am. Life Ins. Co. v. Castonguay, 984 F.2d 1518, 1521--22 (9th Cir. 1993) (But ERISA doesn't purport to regulate those relationships where a plan operates like any other commercial entity -for instance, the relationship between the plan and its own employees, or the plan and its insurers or creditors, or the plan and the landlords from whom it leases its office space. (emphasis added)). The claims of fraud, breach of fiduciary duty, and negligence arise from that status as note holders, and do not touch on the status of the ESOP as a benefit plan or of any of Plaintiffs as participants in that plan (or on any claim the participants may make against the plan in that capacity). Cf. Blue Cross, 187 F.3d at 1054 (The . . . claims concern only promises that Blue Cross made as a health care plan to its participating physicians. They do not touch on Blue Cross' fiduciary status, or any claims that a beneficiary may make against Blue Cross in that capacity.) 27 In Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan Enter., Inc., 793 F.2d 1456 (5th Cir. 1986), an ERISA trust sought to invoke the state law of fiduciary duty as a stockholder by bringing a claim against a corporate director who was also a plan fiduciary. Finding no conflict preemption, the court stated: 28 The director's duty arises from his status as director; the law imposes the duty upon him in that capacity only. Similarly, the shareholder's rights against the corporate director arise solely from his status as shareholder. That in such a case as ours the director happens also to be a plan fiduciary and the shareholder a benefit plan has nothing to do with the duty owed by the director to the shareholder. The state law and ERISA duties are parallel but independent: as director, the individual owes a duty, defined by state law, to the corporation's shareholders, including the plan; as fiduciary, the individual owes a duty, defined by ERISA, to the plan and its beneficiaries. Thus, the state law does not affect relations between the ERISA fiduciary and the plan or the plan beneficiaries as such; it affects them in their separate capacities as corporate director and shareholder. 29 Id. at 1468. Here, any duties owed by the plan to the ESOP participant Plaintiffs are also parallel but independent to those owed to them as note holders. The rights and duties under state law between the ESOP and the note holders, whether ESOP participants or not, are distinct from any ERISA-governed relationship between a plan and its participants. The state claims do not affect that regulated relationship. 30 The third relationship allegedly encroached upon is that between a plan and its fiduciaries, specifically those members of the ESOP Administrative Committee named in the complaint. It is suggested that, as ERISA fiduciaries, the members of the ESOP Administrative Committee were required by ERISA to act solely in the interest of the [plan's] participants and beneficiaries for the exclusive purpose  of providing benefits to participants and their beneficiaries,  as well as defraying reasonable expenses of administering the plan. 29 U.S.C. §§ 1104(a)(1)(A). Assuming that the members of the Administrative Committee are fiduciaries within the meaning of 29 U.S.C. §§ 1002(21)(A), we do not believe that the ERISA-regulated relationship is implicated here. Relying on Castonguay, the ESOP contends that the Committee could not act with that undivided loyalty to the plan and its participants and beneficiaries required by ERISA if state law bound its members to account for the interests and obligations asserted by Plaintiffs. In Castonguay, an insurer brought state law fraud and negligent misrepresentation claims against an ERISA trustee based on allegedly false statements made while securing for the trust an insurance policy to pay for unmanageable plan payments to participants. 984 F.2d at 1520. Finding the state law claims to be preempted because they raised precisely the sort of divided loyalty ERISA is meant to prevent, the court concluded: We hold that, as a matter of federal law, ERISA plan trustees can't be held personally liable for the trust's contracts. Id. at 1523-24. We first note that Castonguay was decided prior to the recent trend narrowing the preemptive force of the relates to standard under §§ 1144(a). Moreover, despite the broad language of undivided loyalties in Castonguay, it is not immediately apparent how the alleged fraud, breach of duty, and negligence of the Committee members on behalf of the ESOP here would directly conflict with their fiduciary duties under ERISA. Unlike that case, the state law claims here did not arise from transactions directly relating to plan benefits or administration. The conduct at issue concerned the acquisition of Norcal shares in exchange for restricted notes and a subsequent failure to redeem those notes. As such, the only impact that the state law duties might have had on the plan or its beneficiaries is an indirect economic burden, which we have held to be insufficient for conflict preemption. See Blue Cross , 187 F.3d at 1052 (holding the economic effects that . . . claims might have on ERISA plans are not sufficient for preemption to occur). Finally, as in Sommers, the members of the Committee are not being sued in their capacity as plan fiduciaries, but rather as the agents of the ESOP corporate entity that obtained Norcal shares from Plaintiff note holders. State law imposes duties upon them in that capacity only; it does not affect them in their capacity as ERISA plan fiduciaries and thus does not encroach upon any regulated relationship between the plan and its fiduciaries. 31 Plaintiffs brought suit in their capacity as note holders pursuant to the terms of the Indenture, which by its own terms is governed by California law. Although some Plaintiffs were also ESOP participants and Norcal employees, their claims were brought solely in their capacity as former shareholders and current creditors. Moreover, this financial relationship arose from a transaction explicitly exempted from ERISA regulations and the claims were unrelated to any aspect of a relationship governed by those regulations. The fraud, breach of fiduciary duty, and negligence causes of action under state law have nothing to do with benefits, the administration of a benefit plan, or any duties imposed by ERISA. No ERISA-regulated relationship is encroached upon by the state law claims. Therefore, the state law claims do not relate to an ERISA benefit plan within the meaning of 29 U.S.C. §§ 1144(a). We conclude therefore that there was no basis to find conflict preemption under ERISA; thus, that the first condition for complete preemption was unsatisfied. 32 b. Displacement under 29 U.S.C. §§ 1132(a) 33 Section 1132(a) provides the exclusive claims that are available under ERISA, as well as by whom and against whom such claims may be brought. See Toumajian , 135 F.3d at 656. The Bank, Norcal, and the ESOP all contend that even though the state complaint did not state an ERISA cause of action on its face, the claims of the ESOP participant Plaintiffs should be displaced for purposes of complete preemption analysis because they are encompassed by ERISA's civil enforcement provision, specifically §§ 1132(a)(2) 7 and (a)(3) 8 . We disagree. 34 Pursuant to the terms of those subsections, [p]articipants and beneficiaries, along with plan fiduciaries, depending on their respective roles, are authorized to bring actions for appropriate relief for breach of fiduciary duty or for injunctions or to obtain other appropriate equitable relief to redress an ERISA violation or to enforce the terms of the plan or the provisions of ERISA. Toumajian , 135 F.3d at 656; see also 29 U.S.C. §§ 1132(a)(2), (a)(3). Assuredly, a subset of Plaintiffs are plan participants entitled to bring suit under the civil enforcement provision of ERISA. In fact, the ESOP participant Plaintiffs here did precisely that by filing a separate federal complaint contemporaneously with the state court action that was later removed. The claims asserted by all Plaintiffs in the state court action, however, do not fall within the scope of §§ 1132(a) because those claims are based upon rights that arise under state law in their capacity as former shareholders of Norcal and current note holders under the Indenture, not upon any rights that are conferred, enforced, or governed by ERISA (nor upon a violation of the terms of a plan). As we have previously noted, [A]n otherwise preempted claim may survive to the extent that it relies on a theory independent of the benefit plan. Tingey v. PixleyRichards West, Inc., 953 F.2d 1124, 1131 (9th Cir. 1992). 35 As discussed at length earlier, the claims of fraud, breach of fiduciary duty, and negligence at issue seek relief for all Plaintiffs on the basis of their reliance in tendering their Norcal shares to the ESOP, the eventual default on their notes, and the failure to redeem or enforce redemption on their notes at the time of the Envirocal transaction. Also, for the purposes of those Plaintiffs who could be considered parties in interest, the leveraged buyout is an exempted transaction. Plaintiffs are not seeking relief on behalf of an ERISA plan, as required under the express terms of 29 U.S.C. §§ 1109(a), which is incorporated into §§ 1132(a)(2), and our case law. See Toumajian, 135 F.3d at 656 (citing Buster v. Greisen, 104 F.3d 1186, 1189 (9th Cir. 1997)). Nor do Plaintiffs' claims derive from a breach of any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter. §§ 1109(a). Therefore §§ 1132(a)(2) is inapplicable. Moreover, none of these Plaintiffs seek[s] relief as a participant, beneficiary, or fiduciary to enjoin any act or obtain any other equitable relief to redress any violations or enforce any provisions of ERISA. Toumajian, 135 F.3d at 656. Therefore §§ 1132(a)(3) is not applicable either. 36 Norcal and the ESOP seek to distinguish Toumajian on the ground that the complaint at issue in that case asserted state law claims for professional malpractice against a nonfiduciary service provider, whereas in this case ERISA fiduciaries were named in the complaint. But irrespective of the status of any of Defendants as the fiduciaries of an ERISA plan, none of the state law claims can be characterized as fiduciary breach claims within the scope of ERISA's civil enforcement provision. Simply put, the claims do not concern any plan fiduciaries in their capacity as such. Nor do they otherwise fall within the scope of ERISA's civil enforcement provision, 29 U.S.C. §§ 1132(a). We conclude therefore that there was no basis for displacement under ERISA; thus, the second condition for complete preemption was also unsatisfied.