Opinion ID: 475510
Heading Depth: 3
Heading Rank: 3

Heading: Fraudulent Failure to Disclose Effect of Sale on Retirement Benefits

Text: 22 The employees claim that Amoco and Norgas deprived them of an opportunity to negotiate with Norgas to credit their years of service with Amoco for the purposes of calculating retirement benefits and induced them to remain employed with Amoco by failing to disclose the disadvantageous terms of the sale. The district court held that this state common law fraud claim was preempted by ERISA. 23 ERISA expressly provides that it shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan covered by ERISA. 29 U.S.C. Sec. 1144(a). The employees argue that ERISA does not preempt state common law fraud actions involving pension plans. Without expressing any opinion as to whether ERISA preempts other fraud claims arising under state common law, we hold that ERISA preempts Alabama's common law fraud cause of action insofar as it recognizes the particular type of claim raised by the employees in this case. 24 The Supreme Court has addressed the scope of ERISA preemption in two cases. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983); Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981). In neither case did the Supreme Court address the question whether ERISA preempts state common law causes of action. However, the opinions are helpful for their general discussions of the scope of ERISA preemption. 25 The Supreme Court in Shaw explained that Congress used the words relate to in their broad sense. Shaw 463 U.S. at 98, 103 S.Ct. at 2900. Thus, ERISA preemption is not limited to those state laws specifically designed to affect employee benefit plans. Nor does it preempt only state laws dealing with the particular subject matters covered by ERISA, such as reporting, disclosure and fiduciary responsibility. Id. Most importantly, for the purposes of this case, 29 U.S.C. Sec. 1144(c)(1) expressly explains that the term state law in the preemption provision includes all laws, decisions, rules, regulations, or other State action having the effect of law, of any State. It is clear, then, that ERISA preempts state common law causes of action as they relate to employee benefit plans. 2 26 We agree with the district court that the particular fraud claim raised by the employees in this case is preempted by ERISA. The action alleged by the employees to have been fraudulent was the failure to disclose the terms of the Norgas benefit plan. The claim depends on the existence of a duty to disclose, which necessarily depends on an interpretation of the fiduciary duties imposed by ERISA. The claim also runs directly into ERISA's disclosure provisions. The compensatory damages specifically sought by the employees for the fraud claim are compensatory damages in the form of loss of employee benefits, including but not limited to, the value of the following benefits: early retirement, retirement, life and health insurance, vacation, and saving plan benefits ... Pretrial Order at 17. This request for damages demonstrates that the employees' fraud claim not only relates to an employee benefit plan but is at its core an ERISA claim. 27 The employees protest that to hold that ERISA preempts this fraud claim, while also holding that ERISA does not prohibit the wrong the employees feel they have suffered, leaves a gap in the law. That is exactly the result that obtains when Congress determines that federal law should govern a broad area to the exclusion of state regulation and chooses not to prohibit actions formerly prohibited by state law. It is the very conflict between the federal scheme and state law that is to be avoided through preemption. To argue that Congress has created a gap in the law does not undermine the reasoning on which a finding of preemption is based. We turn now to the employees' ERISA claims.