Court Opinion

ID: 195944
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:52:46+00
Date Added: 2024-06-11T09:49:58.893917
License: Public Domain

UNITED STATES COURT OF APPEALS
                      FOR THE FIRST CIRCUIT
                                           

No. 94-1786

           VICTOR E. CARLO, JR. AND KATHLEEN M. CARLO,

                     Plaintiffs - Appellants,

                                v.

                 REED ROLLED THREAD DIE COMPANY,

                      Defendant - Appellee.

                                           

           APPEAL FROM THE UNITED STATES DISTRICT COURT

                FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. Nathaniel M. Gorton, U.S. District Judge]
                                                                 

                                           

                              Before

                     Torruella, Chief Judge,
                                                     

                  Bownes, Senior Circuit Judge,
                                                        

                     and Cyr, Circuit Judge.
                                                     

                                           

     John  W. Spillane, with whom  John J. Spillane  was on brief
                                                             
for appellants.
     Thomas  J.  Scannell,  with  whom Michael  P.  Angelini  and
                                                                      
Bowditch & Dewey were on brief for appellee.
                          

                                           

                          March 3, 1995
                                           

          TORRUELLA,  Chief Judge.   This  appeal requires  us to
                    TORRUELLA,  Chief Judge.
                                           

decide  whether ERISA  preempts a  state law  claim of  negligent

misrepresentation against an  employer based upon the  employer's

representations  regarding  the  employee's prospective  benefits

under an early retirement program.  For the following reasons, we

find  that the  state law  claims are  preempted, and  affirm the

district court's ruling.

                    I.  PROCEDURAL BACKGROUND
                              I.  PROCEDURAL BACKGROUND

          The  plaintiffs-appellants, Victor  E.  Carlo, Jr.  and

Kathleen M.  Carlo (the "Carlos"), commenced  this action against

the defendant-appellee, Reed Rolled Thread Die Co., a Division of

Quamco, Inc.  ("Reed"), in Massachusetts state  court in December

1991.  In  their original complaint,  the Carlos alleged  various

state  law claims with  respect to Reed's  early retirement plan.

Reed  removed the case to federal district court in January 1992,

alleging  that  federal law  preempted  the Carlos'  claims.   On

Reed's  subsequent Motion  to Dismiss,  the district  court found

that all  of the  Carlos' state  law claims were  preempted by   

514(a)  of  the  Employment   Retirement  Security  Act  of  1974

("ERISA"), 29 U.S.C.   1001 et seq.,   1144(a).  Accordingly, the
                                             

district court dismissed the Carlos' complaint under Federal Rule

of  Civil  Procedure 12(b)(6)  for failure  to  state a  cause of

action.   The Carlos subsequently  filed a Motion  to Amend their

Complaint. Concluding that  the Proposed Amended Complaint  still

failed  to  allege a  viable  federal claim,  the  district court

denied the Motion  to Amend and dismissed the  Carlos' complaint.

                               -2-

          On  March  2,  1994,  the  Carlos  filed  a  Motion  to

Reconsider, arguing that a recent decision from the Massachusetts

Supreme Judicial Court changed  the ERISA preemption analysis and

rendered  their  state law  claims  viable.   The  district court

denied  the  Motion  to  Reconsider, and  the  Carlos  filed this

appeal.   Reed filed a  Motion to Dismiss  the Appeal,  which was

denied by this Court on September 8, 1994.  We  hereby affirm the

underlying decision of the district court.

                     II.  FACTUAL BACKGROUND
                               II.  FACTUAL BACKGROUND

          The essential allegations of the  Carlos' complaint are

as follows:   Mr. Carlo  is a former  employee of  Reed and is  a

participant in the Quamco, Inc. Retirement Plan (the "Plan").  In

July 1988, Reed offered Mr. Carlo early retirement under an Early

Retirement Program  (the  "ERP").   Mr.  Carlo met  with  William

Baldino  ("Baldino"), Reed's  Personnel Manager,  to discuss  the

benefits  he  would receive  if he  elected the  early retirement

option.   Baldino  informed Mr.  Carlo  of his  expected  monthly

benefits, and  indicated that the  figures had been  certified by

Reed's  corporate program  administrator.   Mr. Carlo  elected to

accept the early  retirement offer, allegedly in  reliance on the

figures provided him by Baldino.

          In December 1988, Reed notified Mr. Carlo of his actual

benefits  under  the  ERP.    The  actual   monthly  benefit  was

approximately twenty percent less than the benefit Carlo expected

to  receive based  on  Baldino's earlier  representations.   Reed

claimed that it had  made a calculation error when  it determined

                               -3-

the benefits represented to  Mr. Carlo in  July 1988.  By  letter

dated  December 30, 1988, Baldino apologized to Mr. Carlo for his

error in calculating Mr. Carlo's pension benefits and offered Mr.

Carlo the opportunity to continue working in the position he then

held.  Baldino's letter stated that the offer to continue working

would remain open  until January 10, 1989.  If  Mr. Carlo did not

accept  within  this period,  the  letter  continued, Reed  would

presume that  Mr. Carlo  was rejecting the  employment offer  and

accepting the  modified Early Retirement  option.  Carlo  did not

accept  the offer  before the  January 10  deadline.   Rather, he

decided to take  early retirement in April  1989, allegedly under

protest.

          On December 3,  1991, the Carlos brought this action in

Massachusetts state  court, alleging state law  claims for, inter
                                                                           

alia, breach of contract and negligent misrepresentation.
              

                     III.  STANDARD OF REVIEW
                               III.  STANDARD OF REVIEW

          The unusual procedural posture here requires a somewhat

nuanced statement of the  standard of review.  The  Carlos appeal

the  denial of their Motion  to Reconsider the  court's denial of

their Motion to Amend the Complaint.  

          With regard  to motions to  amend, we have  stated that

"[w]hile motions to  amend are liberally granted, see Johnston v.
                                                                        

Holiday Inns, Inc., 595  F.2d 890, 896  (1st Cir. 1979), a  court
                            

has the discretion to deny them  if it believes that, as a matter

of  law, amendment would  be futile.   See Jackson  v. Salon, 614
                                                                      

F.2d 15, 17 (1st Cir. 1980); Crews v. Memorex Corp., 588 F. Supp.
                                                             

                               -4-

27, 28 (D.Mass. 1984); 6 C. Wright & A. Miller, Federal  Practice
                                                                           

and Procedure:  Civil    1487 at 432-33 (1971)(citing cases).  We
                               

will generally defer to a district court's decision to deny leave

to  amend where the reason is 'apparent or declared.'"  Demars v.
                                                                        

General Dynamics Corp., 779 F.2d  95, 99 (1st Cir.  1985)(quoting
                                

Tiernan v. Blyth, Eastman, Dillon &  Co., 719 F.2d 1, 4 (1st Cir.
                                                  

1983)).  

          Here,  the Carlos'  Motion  to  Reconsider argued  that

their state law claims were  rendered viable by the Massachusetts

Supreme Judicial  Court's decision  in Pace v.  Signal Technology
                                                                           

Corp., 628 N.E.2d 20, 22 (Mass. 1994).  The district court denied
               

the  Motion, finding  that  controlling First  Circuit  precedent

mandated preemption of the  Carlos' claims.  In other  words, the

district court concluded that  the Carlos' proposed amendment was

futile.   This decision necessarily  entailed an analysis  of the

underlying preemption issue,  a question of  law.  Therefore,  we

review  it here.  That is,  we will review whether ERISA preempts

the  Carlos' state law claims for negligent misrepresentation.   

                         IV.  PREEMPTION
                                   IV.  PREEMPTION

          Section 514 of ERISA supersedes "any and all State laws

insofar  as  they may  now or  hereafter  relate to  any employee
                                                             

benefit  plan . .  . ."1   29 U.S.C.    1144(a) (emphasis added).

"The  term  'State  Law'  includes all  laws,  decisions,  rules,
                    
                              

1   The  parties  do  not  dispute that  the  ERP  constitutes  a
qualified  employee  benefit  plan  for  the  purposes  of  ERISA
preemption.

                               -5-

regulations, or other State  action having the effect of  law, of

any State."    29  U.S.C.     1144(c).   The  Supreme  Court  has

established that "a law 'relates to' an employee benefit plan . .

.  if it  has a  connection with  or reference  to such  a plan."

Ingersoll-Rand,  Co.  v.  McClendon,  498 U.S.  133,  139  (1990)
                                             

(quoting  Shaw v.  Delta  Air Lines,  Inc.,  463 U.S.  85,  96-97
                                                    

(1982)).  "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."   Id. (quoting Pilot Life Ins.  Co.
                                                                           

v. Dedeaux, 481 U.S. 41, 47 (1987)).
                    

          In  Ingersoll-Rand, the  Supreme  Court identified  two
                                      

tests  for  determining  whether  a  state  cause  of  action  is

preempted because it "relates to" an ERISA plan.  First, a law is

expressly preempted by ERISA  where "the court's inquiry must  be

directed to the plan."  Ingersoll-Rand, 498 U.S. at 140.  Second,
                                                

even  where there is no express  preemption, a cause of action is

preempted if it conflicts directly with ERISA.  Id. at 142.
                                                             

          Given  these  preemption  principles,  we  must  decide

whether  the Carlos' claims relate  to the ERP  and are therefore

preempted.  The Carlos' suit seeks  damages for what can best  be

described as negligent misrepresentation.   They argue that their

claims for misrepresentation are so  remotely related to the  ERP

that, for the purposes of ERISA preemption, they do not relate to

it.   They allege  that they are  not seeking  coverage under the

ERP, but rather damages  sustained as a result of  Reed's alleged

                               -6-

misrepresentation concerning the extent of Mr. Carlos' retirement

benefits  under the  ERP.   They  maintain,  therefore, that  the

court's  inquiry will  not  necessarily be  directed to  the ERP.

They also emphasize that because they are suing Reed, and not the

Plan Trustee, any damages will not effect the fiscal integrity of

the ERP.

          Courts  have  struggled  over  whether  ERISA  preempts

claims of  misrepresentation regarding the scope  or existence of

benefits,  and "'there  is ample,  well reasoned  authority which

would support either position.'"  Pace, 628 N.E.2d at 22 (quoting
                                                

Cutler  v. Phillips Petroleum Co., 859 P.2d 1251, 1254 (Wash. Ct.
                                           

App. 1993)).   Courts  finding that misrepresentation  claims are

not  preempted  have reasoned  that  the mere  fortuity  that the

misrepresentation  involved pension  benefits is  insufficient to

cause the "axe  of federal  preemption to fall."   Greenblatt  v.
                                                                       

Budd  Co., 666 F. Supp. 735, 742  (E.D. Pa. 1987); see also Pace,
                                                                          

628 N.E.2d at 22 (holding that where the "resolution of state law

claims will neither 'determine whether any benefits are paid' nor

'directly affect the administration  of benefits under the plan,'

the  claims  do not  'relate to'  ERISA  and accordingly  are not

preempted")2 (citation  omitted).   That is, they  have concluded

that  the  misrepresentation  claims   should  not  be  preempted

because,  "simply  put, the  premise  underlying  [the cause  of]

action  [is] that  the  plaintiff  was  deceived  by  the  verbal

                    
                              

2  Of course, Pace, as a state court decision, is not controlling
                            
precedent on this issue.

                               -7-

statements made and the actions taken by his employer.  That  the

subject  of  the deception  concerned  pension  benefits is  only

incidental and not essential to the plaintiff's cause  of action.

Like  promises for a raise in salary,  a promotion, or the use of

tickets  to a  baseball game,  plaintiff's employer's  promise to

provide the plaintiff  with certain  benefits . .  ., upon  which

plaintiff  could   reasonably  rely,   is  the  essence   of  the

[misrepresentation] alleged."  Greenblatt, 666 F. Supp. at 742.
                                                   

          The  courts   finding  against  preemption   have  been

troubled  by  the fact  that  ERISA preemption  in  these benefit

misrepresentation suits often leaves plaintiffs remediless.  See,
                                                                          

e.g., Pace, 628 N.E.2d at 24 ("That a statute whose clear purpose
                    

was to benefit employees  has become widely used  as a shield  to

protect employers from any deceptive  and wrongful acts they  may

have  committed  against  their employees  is  an  irony  we find

unacceptable . .  . ."); Greenblatt, 666 F. Supp.  at 742 (noting
                                             

that because the plaintiff would likely be without a remedy under

ERISA,  "it would defy logic to presume that Congress intended to

preempt the  common law action  of fraud  in a situation  of this

type.").

          Despite  these cogent  arguments against  preemption in

misrepresentation  claims,  we   nevertheless  find  that   ERISA

preempts the Carlos' claims because they "relate  to" an employee

benefit  plan.     ERISA's  "deliberately  expansive"  preemption

language was  "designed to 'establish pension  plan regulation as

exclusively a federal concern.'"  Pilot Life Ins. Co. v. Dedeaux,
                                                                          

                               -8-

481 U.S. at 46 (quoting Alessi v. Raybestos-Manhattan, Inc.,  451
                                                                     

U.S. 504, 523 (1981)).  As Senator Harrison Williams stated:

            It  should  be  stressed  that  with  the
            narrow exceptions specified in  the bill,
            the    substantive    and     enforcement
            provisions  of the  conference substitute
            are intended  to  preempt the  field  for
            Federal regulations, thus eliminating the
            threat  of  conflicting  or  inconsistent
            State  and  local regulation  of employee
            benefit   plans.     This   principle  is
            intended to  apply in its  broadest sense
            to   all  actions   of  State   or  local
            governments,   or   any   instrumentality
            thereof, which  have the force  or effect
            of law.

120 Cong. Rec. 29933 (1974).

          With this sweeping principle in mind,  we find that the

Carlos' claims are preempted because they have "a connection with

or reference  to" Reed's ERP.   If the Carlos were  successful in

their  suit, the  damages  would consist  in  part of  the  extra

pension benefits which Reed allegedly  promised him.3  To compute

these damages would require the court to refer to the ERP as well

                    
                              

3   The Carlos argue that  their claims do not  relate to the ERP
because  they  are  seeking  damages  for  a  tort  committed  by
Mr. Carlo's employer within the course of his employ.  Their tort
action, they maintain,  is distinct from a  contractual claim for
the promised benefits, which they concede would be preempted.  We
find  this  distinction to  be meaningless  here.   As  the Fifth
Circuit noted,  "ERISA's preemption of state  law claims 'depends
on the conduct to  which such law is applied, not  on the form or
label of the law.'"  Cefalu  v. B.F. Goodrich Co., 871 F.2d 1290,
                                                           
1294  (5th  Cir.  1989);  see  also  Pohl  v.  National  Benefits
                                                                           
Consultants, Inc., 956 F.2d  126, 128 (7th Cir. 1992)  (The court
                           
noted that  although the plaintiffs  were not seeking  to enlarge
their coverage as such,  any money they obtained from  their suit
would  be functionally a  benefit to which the  terms of the plan
did  not  entitle them.    "This type  of  end  run is  regularly
rebuffed.").

                               -9-

as  the misrepresentations allegedly made by Reed.  Thus, part of

the  damages to  which  the Carlos  claim entitlement  ultimately

depends  on an  analysis of  the  ERP.   To disregard  this as  a

measurement  of their damages would  force the court to speculate

on  the amount of  damages.   Consequently, because  the "court's

inquiry must be  directed to  the plan," the  Carlos' claims  are

preempted  under the first test set forth in Ingersoll-Rand.  498
                                                                     

U.S. at 140.

          Our ruling here is in accord with our previous decision

in Vartanian v.  Monsanto, Co., 14 F.3d 697, 700 (1st Cir. 1994).
                                        

In Vartanian, the plaintiff  accepted an early retirement package
                      

based on the employer's assurances that it was  not contemplating

the creation of  an enhanced  severance program.   In fact,  when

Vartanian made  these specific  inquiries about early  retirement

programs,  Monsanto had  already given  serious consideration  to

reducing  its  staff and  was  contemplating the  formation  of a

special early  retirement  plan.   Vartanian  claimed that  as  a

result of his reliance on Monsanto's misleading statements to the

effect that the company did not  intend to create a more generous

retirement package, he missed the opportunity to retire under the

more advantageous  provisions of the  new plan,  which went  into

effect  shortly after his retirement.   We found that Vartanian's

claims  were preempted because "the existence of the 1991 Plan is

inseparably  connected  to any  determination of  liability under

state  common law  misrepresentation."   Id.   As we  then noted,
                                                      

"[t]here simply is no cause of action  if there is no plan."  Id.
                                                                           

                               -10-

Therefore,  Vartanian's misrepresentation  claim  related  to  an

ERISA plan because it was inseparably connected to it.4

          Similarly, the Carlos' claims are inseparably connected

to the ERP.  The Carlos and Vartanian both sought  damages for an

employer's  alleged  misrepresentation  concerning  the  scope or

existence of early retirement  benefits.  The damages claimed  in

both instances were dependent, at least in part, on analysis of a

qualified  ERISA   plan.     Moreover,   the   misrepresentations

themselves  concerned, ultimately,  the  amount  of benefits  the

plaintiffs would be entitled to upon retirement.5
                    
                              

4  A number of other circuits have also considered claims similar
to those alleged by  the Carlos and  found them preempted.   See,
                                                                          
e.g.,   Pohl,    956   F.2d    126   (preempting    a   negligent
                      
misrepresentation  claim based on the defendant's assurances that
it  would cover  the plaintiff's  medical expenses);  Cefalu, 871
                                                                      
F.2d  1290 (preempting  a  misrepresentation claim  based on  the
employer's  assurance  that the  plaintiff's  retirement benefits
would  be equivalent  under  two  different employment  options);
Anderson  v. John  Morrell &  Co., 830  F.2d 872 (8th  Cir. 1987)
                                           
(preempting plaintiff's  contract claim  based on  his employer's
promise  that his fringe benefits as a member of management would
be  equivalent to those he would  have received had he remained a
member  of a union); Straub  v. Western Union  Telegraph Co., 851
                                                                      
F.2d    1262   (10th    Cir.   1988)    (preempting   plaintiff's
misrepresentation  claim based  on  assurances  that his  pension
benefits  would be  increased  if he  accepted  a transfer  to  a
subsidiary company owned by his employer).

5    One  notable  difference distinguishes  Vartanian  from  the
                                                                
Carlos' case.   In Vartanian,  the plaintiff allegedly  had taken
                                      
early retirement  because  of a  misrepresentation  about  future
retirement benefits.   We found that, in these circumstances, the
plaintiff  had a cause of action under ERISA because the employer
had  breached a fiduciary duty  to a plan  participant.  Although
the issue was not raised  on appeal, the difference here  is that
after  Mr. Carlo's employer realized  that he had  made a mistake
regarding Mr.  Carlo's retirement benefits, he  offered Mr. Carlo
an  opportunity  to  continue  working  so  that  his  retirement
benefits would not be adversely affected.  Therefore,  the Carlos
were  never deprived  of a  benefit to  which they  were entitled
under ERISA.

                               -11-

          In  sum, we  find  that the  ERISA's express  language,

jurisprudence, and legislative history all mandate a finding that

ERISA preempts the Carlos' state law claims.

          We  have  considered the  other  issues  raised by  the

Carlos and find them meritless.

          Affirmed.
                            

                               -12-